What You Need to Know
- Cryptocurrency prices grew substantially from December 2020 to December 2021, but have plummeted since.
- Crypto is considered property, which means sales proceeds are treated as long- or short- term capital gains or losses.
- Wash sale rules don’t apply to crypto, making it useful for tax-loss harvesting.
Cryptocurrency investors had a wild ride over the past two years. From Dec. 20, 2020, to Dec. 19, 2021, bitcoin’s (BTC) price rose 93% and ethereum (ETH) grew by 495%.
But the good times were over by November 2021. Bitcoin and ethereum both peaked early that month, and their collapse since then has been dramatic. From Dec. 19, 2021, to Dec. 18, 2022, bitcoin dropped 67%, and ethereum fell 70%.
Given that pattern and the coins’ currently depressed market prices, it’s likely that your clients who bought crypto over the past two years and are still holding their positions have unrealized losses in their portfolios. It’s a good time to review tax rules and strategies for crypto investors to learn what, if anything, can be gained from crypto’s crash.
How the IRS Sees Crypto Gains and Losses
The IRS treats cryptocurrencies as property, so the same short-term gain and loss or long-term gain and loss rules apply to the sale of crypto assets that apply with other traditional capital assets, says Jesse Rodriguez, manager in Kaufman Rossin’s tax advisory group in Miami.
“It’s based off the holding period and the tax rate depends on…
