After a tough year for crypto, you may be looking for ways to turn steep losses into possible tax breaks. The digital currency industry lost nearly $1.4 trillion in 2022 after a slew of bankruptcies and liquidity issues, including the collapse of digital currency exchange FTX. Before filing your tax return, however, there are a few things to know about reporting last year’s losses, according to financial experts. One of the silver linings of plummeting assets is the chance to leverage tax-loss harvesting, or using losses to offset gains. If you sold crypto at a loss, you can subtract that from other portfolio profits, and once losses exceed gains, you can trim up to $3,000 from regular income, explained Lisa Greene-Lewis, a certified public accountant and tax expert with TurboTax. Plus, there’s currently no “wash sale rule” for crypto. The rule blocks the tax break if you buy a “substantially identical” asset 30 days before or after the sale. You calculate your loss by subtracting your sales price from the original purchase price, known as “basis,” and report the loss on Schedule D and Form 8949 on your tax return. If your crypto losses exceed 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 lose track of carryover losses and miss future opportunities to lower taxes, she warned.
Read more : After a tough year for crypto, here’s how to handle losses on your tax return.
