Crypto Investors Have 4 More Days To Put Their Losses To Good Use

Tax loss harvesting can give traders the opportunity to offset up to $3,000 of ordinary income this year or in the future

article-image

Mega Pixel/Shutterstock.com modified by Blockworks

share

Crypto traders who lost money this year have four more days to realize their losses and take advantage of taxes. 

The deadline for tax loss harvesting — when an investor sells an underperforming asset to reduce taxable capital gains — is New Year’s Eve. It is best to sell toward the end of the year, TokenTax accountant Andrew Perlin said, because traders can better approximate total gains. 

When used to its full potential, tax loss harvesting can give traders the opportunity to offset ordinary income this year or in the future. 

“If your capital losses for the year exceed your capital gains, you can use up to $3,000 of losses per year ($1,500 if you are married and filing separately) to offset regular income after reducing investment gain,” Perlin noted in a recent blog post.

Tax loss harvesting postpones tax obligations — it does not cancel any tax obligations. The idea for traders is that through tax-loss harvesting, investors can put more money into growing their portfolios, Perlin said.

“This is how the logic works: By the time you pay the taxes you postponed through tax-loss harvesting, your portfolio would theoretically have generated significantly more than the tax amount you owe. In this scenario, you would end up with a higher dollar amount in the long run,” Perlin added. 

Because most tax loss harvesting occurs in November and December, investors should keep an eye on the most popular stocks and commodities for tax-loss selling because they are often the ones to see the highest gains the following year.

Selling an asset at a loss to lock in a tax benefit and then re-purchasing the same asset within 30 days, known as wash trading, is prohibited in the US. 

Read more: It’s Never Too Early To Get Your Crypto Taxes in Order

With crypto, just like with stocks and property, investors can carry forward capital losses to deduct from future capital gains, meaning that traders can still benefit even if they do not have capital gains to offset that same year. There is no expiration date on losses that can be carried forward to offset future gains or income. 

NFT traders can also look into tax loss harvesting, Perlin noted, but given the complexity of appraising the assets, the process is more complicated. 

“In theory, you can tax-loss harvest NFTs just like you would a fungible token,” he said. “However, the process can come with extra challenges, such as difficulty estimating fair market values or struggling to realize a loss on a worthless asset.”


Don’t miss the next big story – join our free daily newsletter.

Tags

Upcoming Events

HYATT REGENCY SALT LAKE CITY

TUES, OCT. 8, 2024

Guided by the expertise of Blockworks Research Analysts team, this one day event will feature senior leaders, entrepreneurs, and developers from across the crypto industry. Attendees will have the opportunity to participate in an immersive experience to explore the latest trends, […]

Salt Lake City, UT

WED - FRI, OCTOBER 9 - 11, 2024

Pack your bags, anon — we’re heading west! Join us in the beautiful Salt Lake City for the third installment of Permissionless. Come for the alpha, stay for the fresh air. Permissionless III promises unforgettable panels, killer networking opportunities, and mountains […]

recent research

hivemapper.jpeg

Research

We believe crypto market participants overlook Hivemapper’s fundamental potential due to a poor understanding of both the niche map data market and Hivemapper’s positioning relative to incumbents. Hivemapper’s token model catalyzes both a cost and product advantage via unmatched map freshness and near real-time accuracy, which is its wedge into a market characterized by stale data and high data collection costs. Its current and potential future product suite may represent one of the strongest possibilities for PMF in crypto today.

article-image

The Department of Justice and Commodity Futures Trading Commission announced back-to-back lawsuits against KuCoin Tuesday

article-image

Judge Failla found that Coinbase didn’t operate as an unregistered broker in offering its wallet service

article-image

A fund by Laser Digital offers investors exposure to the Polygon network, while a new 21Shares ETP focuses on staking rewards from Toncoin

article-image

Sponsored

The TRON network’s integration into Dune brings a wealth of data and insights to the fingertips of users

article-image

A BTC futures fund offered by Hashdex and Tidal Investments has gotten regulatory clearance to hold bitcoin directly

article-image

At launch, Chain Signatures will be compatible with Bitcoin, Ethereum and Cosmos network chains, as well as DogeCoin and XRP Ledger