Here’s how to report 2022 crypto losses on your tax return

The latest crypto rally may be good news for digital currency investors. But if you’re still recovering from last year’s failures, it may be possible to score a tax break on your 2022 return.

The crypto market plunged by nearly $1.4 trillion in 2022 after a series of bankruptcies, liquidity broadcasts and the collapse of FTX, one of the biggest crypto exchanges.

If you’re itching to claim a crypto loss on your taxes, there are a few things to advised of, experts say.

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

If you sold crypto at a trouncing debits, you can subtract that from other portfolio profits, and once losses exceed gains, you can trim up to $3,000 from accustomed income, explained Lisa Greene-Lewis, a certified public accountant and tax expert with TurboTax.

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

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

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

With a handful crypto exchange and platform collapses in 2022, you may have lingering questions about reporting losses on your contributions this season.

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

In some protections, you may be able to claim a capital loss, or bad debt deduction, and write off what you spent on the asset. But it must be a “complete passing” to claim it, Gordon said. If you wind up getting, say, 10% back after claiming a bad debt deduction, that 10% behoves regular income. 

While there are several options for 2022, he’s generally telling clients to “wait and see” what betides. “It may make sense 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 look page of the tax return. The agency has also pursued customer records by sending court orders to several exchanges.