The crypto assets holders are experiencing a low market; however, there is a silver lining to this black cloud. The lower performance of the assets will actually help investors in saving tax amount if they know how to record and file correctly.
As per the U.S. tax code, Bitcoin (BTC) investors who are “rekt” (which means wrecked in regular language) in this year, can use the losses to decrease their tax burden for the present financial year and even after.
The United States Internal Revenue Service (IRS) has considered crypto assets as commodities; not as a currency. And hence transactions in the crypto would be treated as any other commodity transaction in the stock market or how the land deals are looked at.
The tax which needs to understand is the Capital Gains Tax. In case of short-term gains this tax can be as high as 40.8 percent, and on long-term benefits, you could be taxed for 23.8 percent. This tax is applicable whenever the asset holder sells the assets for the price more than what he/she has bought them for. To explain it more, suppose an investor bought 10 BTC two years ago for $1,500/BTC. And now the investor is selling them at $4,000/BTC; then the capital gains tax will be applicable on the profit of $25,000.
On the other hand, as per the IRS form 8949, if the investor had to sell its assets at a loss, the investor can claim the amount of loss against the total capital gains tax on his/her all commodity investment activities along with the personal income tax. However, it is subject to the limit which is up to $3,000 per financial year.
Here investors have another option to carry forward the losses to the next financial year to balance the effect with their tax burden (personal income tax).
One more advantage is, crypto assets are not subject to “wash sale.” Which means, the government does not force investors to purchase holdings within 30 days disposing of the loss-making asset. Investors are allowed to sell a portion of their crypto holdings, file for the loss under the IRS form 8949 and then repurchase it after a short duration.