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24HalTax
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Crypto losses

I had to pay some $8000 in taxes for Crypto gains in 2021. Right after the start of 2022 I lost most of that gain as I was still holding the Cryptos. How do I claim this loss to get back some of the $8000 I had to pay?

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1 Reply

Crypto losses

Without more of an explanation, it sounds like you made a mistake by reporting gains, if you had not actually sold the units yet.  Cryptocurrency is treated by the IRS like property--like collectible coins or comic books or any other item of property that can fluctuate in value.  You only pay tax if you have a realized gain (a gain that is made real by selling or converting the property.)

 

For example, if you have $1000 of bitcoin that increases in value to $3000, you don't pay tax on the increased value unless you sell or convert the bitcoin.  Suppose you convert it to cash, then you have a realized gain and you pay tax on the gain.  Or, suppose you convert the $3000 bitcoin to $3000 of etherium.  You pay tax on the realized gain.  But then, if the etherium loses value and convert to cash for $2000, you have a $1000 deductible loss.  But if you hold the etherium, you don't have a deductible loss because you have not realized the loss.  

 

Without further clarification, it sounds like you need to amend your 2021 return to remove the capital gains tax on the gain in value.  Then going forward, are you still holding the crypto?  Then you have nothing to report.  Or if you sold it or converted it in 2022, you would report that in 2022, not 2023.  What matters is whether you have realized the gain or loss.  Unrealized gains and losses are neither taxable nor deductible.

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