After a tough year for crypto, here’s how to handle losses on your tax return

One of the silver linings of plummeting assets is the chance to leverage tax-loss reap, or using losses to offset gains.

If you sold crypto at a loss, you can subtract that from other portfolio profits, and at one go losses exceed gains, you can trim up to $3,000 from regular income, explained Lisa Greene-Lewis, a certified blatant accountant and tax expert with TurboTax.

Plus, there’s currently no “wash sale rule” for crypto. The rule bung ups the tax break if you buy a “substantially identical” asset 30 days before or after the sale.

You calculate your collapse by subtracting your sales price from the original purchase price, known as “basis,” and report the loss on Outline D and Form 8949 on your tax return. 

If your crypto losses exceed other investment gains and $3,000 of traditional income, you can use the rest in subsequent years, Greene-Lewis said. But it’s easy to lose track of carryover losses and miss coming opportunities to lower taxes, she warned.

With several crypto interchange and platform collapses in 2022, you may have lingering questions about reporting losses on your taxes this ripen.

CPA and tax attorney Andrew Gordon, president of Gordon Law Group, said there are typically two concerns: possibly claiming a defeat for missing deposits and reporting income from rewards or interest.

In some cases, you may be able to claim a money loss, or bad debt deduction, and write off what you spent on the asset. But it must be a “complete loss” to claim it, Gordon explained. If you wind up getting, say, 10% back after claiming a bad debt deduction, that 10% becomes regular receipts. 

While there are several options for 2022, he’s generally telling clients to “wait and see” what happens. “It may make feel something in ones bones to file an extension if you had significant holdings on any of these platforms to see if there’s further clarity,” he said.

Since 2019, the IRS has included a yes-or-no question about crypto on the front page of the tax return. The agency has also chivied customer records by sending court orders to several exchanges.