Investors in the crypto markets suffered massive losses last year as the prices of Bitcoin and other altcoins collapsed. While the intelligent thing that traders should have done at such bleak times would have been to liquidate their cryptocurrencies to lock in their losses and claim them on the taxes, however, the American finance company, Credit Karma has revealed it was not the case.
As per the data collected by the firm, out of the total losses incurred by crypto investors in the United States, only 34% were realized. Such a move highlights that perhaps many American crypto investors are not aware of the existent crypto laws.
In 2018 losses in crypto markets amounted to a whopping USD 5 billion. The data by Credit Karma reveals that only a third of the total losses have been realized by crypto investors.
Investment in crypto assets in the United States entails the establishment of cost basis for tax purposes. Selling cryptocurrencies is also taxable under the US regulations. If an asset is not sold, then the gains or losses in cryptocurrencies are only on the paper and they cannot be claimed on taxes. A crypto investor in the US must realize that in order for it to be a taxable event, she/he must sell the crypto assets. Hence, it is clear that many American crypto investors are unaware that they can get a tax reduction for the losses incurred.
General Manager at Credit Karma, Jagjit Chawla, elaborated on the point saying,
“Even though those who sold their bitcoin at a loss can typically claim a tax deduction we found that before taking our survey, 61% of respondents who lost money on bitcoin didn’t actually realize they could get a tax deduction for bitcoin losses.”
In the US, just like real estate, crypto assets are also considered property. Hence, digital currencies are subject to capital gains tax. The tax is dependent on the investor’s incomes, and also the time period for which the crypto asset has been held.
An American crypto investor can claim up to USD 30,000 in losses in a year, and anything above that will be carried over to the next year. If you are a crypto investor in the United States, then it is important that you get acquainted with the regulations surrounding crypto to be able to tread the markets with confidence. Of course, you can also speak with a Certified Public Accountant who specialises in cryptocurrencies.