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The crypto market has fallen 46% from its all-time high in May, but wise investors are celebrating the fall in prices.
According to Onramp Invest CEO Tyrone Ross, IRS classifies digital currencies such as Bitcoin as assets, so losses from holding cryptocurrencies are treated in a very different way than losses from stocks and investment trusts. .. For crypto tokens, wash sale rules do not apply. This means that you can sell Bitcoin and buy it right away, but for stocks you have to wait 30 days before you buy.
This nuance of tax law is absolutely huge for US crypto holders
For one thing, it paves the way for tax-reduced harvests.
“One of the things a knowledgeable investor does is to lose money and buy back Bitcoin at a low price,” said Shehan Chandrasekera, chief accountant and tax strategy officer at cryptocurrency software company CoinTracker.io. I will explain. “You want to look as poor as possible.”
The more losses you can build up, the better for investors in the long run.
“You can harvest unlimited losses and carry them over to an unlimited tax year,” added Chandra Sekera.
Since the wash sale rules do not apply, investors can harvest crypto losses more aggressively than stocks because there is no burned waiting period.
“I see people doing this monthly, weekly, and quarterly, depending on their sophistication,” he said. “You can collect so many of these losses.”
Incurring these losses is a way for investors to ultimately offset future profits.
When an individual liquidates a cryptocurrency stake, these collected losses can be used to reduce what the IRS has to pay through capital gains taxes.
Repurchasing crypto quickly is another important part of the equation. At the right time, if the price of digital coins rebounds, buying a dip can help investors regain their ride quality.
So suppose a taxpayer buys one Bitcoin for $ 10,000 and sells it for $ 50,000. This individual will face a taxable capital gain of $ 40,000. But if this same taxpayer had previously harvested a loss worth $ 40,000 in a previous cryptocurrency transaction, they could offset the taxes they were owed.
According to Chandrasekera, this is a strategy that is gaining attention among CoinTracker users.
However, he warned that thorough bookkeeping was essential.
“Without detailed records of your transactions and costs, you cannot prove your calculations to the IRS,” he warned.
Wash sale rules do not apply to Bitcoin, Ethereum and Dogecoin
Source link Wash sale rules do not apply to Bitcoin, Ethereum and Dogecoin