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Anyone who has bought a high-altitude cryptocurrency at the start of this year is more than likely to get their hair off right now. The main cryptocurrencies, including bitcoins, bitcoin liquidity, litecoin and ethereum, have crashed to minimum levels that have not been seen for two years. Bitcoin slipped below $ 3,250 this week, a value that saw the last time in the summer of 2017.
For those who regretted having put their money in the 21st century version of tulip bulbs, there is a positive side: at least you can cancel the losses on your taxes.
The IRS published a guide in 2014 that allows taxpayers to know that cryptocurrencies are considered capital goods by the government, which means you have to pay taxes on earnings. However, the opposite is also true. Taxpayers can cancel investment losses up to $ 3,000 per year. This includes actions, bonds or property, which is the way the government considers cryptocurrencies.
"Last year I had ten clients who met me at the end of the year to tell me how much money they were doing in bitcoin," said Jonathan Medows, managing partner of Medows CPA, a New York accounting firm. A few months later, he said, those customers were getting drugs.
There are some things that taxpayers have to do if they are thinking about reducing their losses. First, those losses must be realized. This means that the purified cryptocurrency must be sold (not maintained in the hope that it will recover). Exchanging cryptocoins for something else has the same effect. So, if you use bitcoins buy a car or a cup of coffee, you'll have to take into account the difference in value between when you bought the currency and when you changed it.
Loss limits
The IRS only allows taxpayers to deduct $ 3,000 in capital losses for each year. Any losses over this must wait until the following years.
Here is an example. Dan bought a bitcoin at the beginning of March, for $ 11.340. For Thanksgiving, after a dip of almost 70% in the price of bitcoin, he realized that it was a bad investment and dumped it for $ 3,804. Dan has a loss of over $ 7,500; he will be able to deduct $ 3,000 from his earnings for this year, another $ 3,000 for 2019 and $ 1,500 in 2020, outside of any other investment loss he might have.
When exactly someone who bought bitcoins makes a big difference, tax experts notice.
"The people who are suffering right now are the people they were buying at the end of last year, when Bitcoin was firing over five thousand, seven thousand, fifteen thousand," said Victor Jaramillo, a tax attorney in Caplin and Drysdale. "If you invested two years ago, you're still in the green."
Go out
Given the general trajectory of the crypt, however, even those who have not lost money could think of selling their holdings. Those who hope to minimize their tax debt can offset such gains by selling other assets that have lost value. You can also donate bitcoins, just as you could donate appreciated shares, but, Jaramillo said, the recipient should be technically able to accept the donation.
