How to report crypto losses in 2022 on your tax return – NBC New York
- If you’re still recovering from last year’s crypto losses, it may be possible to get a tax deduction on your returns in 2022.
- Tax loss harvesting can provide relief from declining assets, but you may need more time for clarity in bankruptcy cases, experts say.
The latest crypto rally could be good news for digital currency investors. However, if you are still recovering from last year’s loss, it may be possible to get a tax credit on the return in 2022.
The crypto market plunged by almost $1.4 trillion in 2022 after a series of bankruptcies, liquidity problems and the collapse of FTX, one of the largest crypto exchanges.
If you want to claim a crypto loss on your taxes, there are a few things to know, experts say.
Offset gains with crypto losses
One of the benefits of declining assets is the ability to take advantage of tax-loss harvesting, or using losses to offset gains.
If you sold crypto at a loss, you can deduct it from other portfolio gains, and when losses exceed gains, you can trim up to $3,000 from ordinary income, explained Lisa Greene-Lewis, a certified public accountant and tax expert with TurboTax.
Additionally, there is currently no “wash sale” rule for crypto. The rule blocks the tax relief if you buy a “substantially identical” asset 30 days before or after the sale.
You calculate your loss by subtracting the sales price from the original purchase price, known as “basis,” and report the loss on Form D and Form 8949 on your tax return.
If your crypto losses exceed other investment gains and $3,000 of ordinary income, you can use the rest in subsequent years, Greene-Lewis said. But it is easy to lose track of carried forward losses and miss future opportunities to lower taxes, she warned.
Wait to claim bankruptcy losses
With multiple crypto exchanges and platform collapses in 2022, you may have lingering questions about tax loss reporting this season.
CPA and tax attorney Andrew Gordon, president of the Gordon Law Group, said there are usually two concerns: potentially claiming losses for non-deposits, and reporting income from rewards or interest.
In some cases, you can claim a capital loss, or bad debt deduction, and write off what you spent on the asset. But it must be a “complete loss” to claim it, Gordon said. If you end up getting, say, 10% back after claiming a bad debt deduction, that 10% becomes ordinary income.
While there are more options for 2022, he usually tells customers to “wait and see” what happens. “It might make sense to file an extension if you had significant holdings in any of these platforms to see if there is further clarity,” he said.
You must report crypto – even without forms
In 2021, Congress passed the infrastructure bill, which required “digital currency brokers” to file Form 1099-B, which reports an asset’s gain or loss, annually. However, the IRS delayed this rule in late December.
Some digital exchanges have already followed suit. But regardless of whether you received the form, it’s still important to disclose your crypto activity, said Ryan Losi, a CPA and executive vice president of CPA firm Piascik.
Since 2019, the IRS has included a yes-or-no question about crypto on the front of the tax return. The agency has also pursued customer records by sending court orders to several exchanges.
“The IRS has over five years of information on taxpayers,” Losi said, so if they find out you have crypto and you haven’t reported, you could be targeted, he said.