US Crypto Tax Loss Harvesters Make Hay While the Sun Shines – But the Clock’s Ticking

hat crypto traders are allowed to write off their losses by selling tokens at lower prices – only buying the same type of coin again within the next 30 days. Furthermore, some traders seek to buy offsetting positions in a bid to avoid having to file capital gains declarations.

CNBC Celý článek

hat crypto traders are allowed to write off their losses by selling tokens at lower prices – only buying the same type of coin again within the next 30 days. Furthermore, some traders seek to buy offsetting positions in a bid to avoid having to file capital gains declarations.

CNBC quoted Shehan Chandrasekera, the head of tax strategy at the crypto tax software firm Coin Tracker, as claiming that “savvy investors” currently “sell at a loss and buy back bitcoin (BTC) at a lower price” in an attempt to “look as poor as possible.”

He said:

“I see people doing this every month, every week, every quarter, depending on their sophistication.”

Chandrasekera said that the status quo allows investors to chalk up “an unlimited amount of losses” and “carry them forward into an unlimited number of tax years.”

But those taking advantage of the loophole will be casting an eye at Congress’ Ways and Means Committee, which has filed a proposal for a legal change, bundled with a number of other tax changes.

Of so-called constructive sales, the committee wrote that “digital assets” should be included “in the constructive sale rules, anti-abuse rules previously applicable to other financial assets,” adding:

“The constructive sale rules [...] treat the adoption of certain offsetting positions to previously owned positions as sales of the previously owned position. These rules prevent taxpayers from locking in investment gains without realizing taxable gain.”

And on “wash sales,” they wrote of the need to include “digital assets in the wash sale rule,” which they called “an anti-abuse rule previously applicable to stock and other securities.”

The committee continued:

“The wash sale rule [...] prevents taxpayers from claiming tax losses while retaining an interest in the loss asset.”

Previous calculations made by the Washington Post found that the government could raise up to USD 16bn in tax revenue if rule changes are introduced as planned.

The Joint Committee on Taxation is even more optimistic, with its own calculations putting the figure closer to USD 17bn.

However, in a piece for Forbes, Chandrasekera argued that there could still be ways for traders in the United States to conduct some forms of tax loss harvesting for constructive sales, provided they got their timing and calculations right.

But, he warned, “it will be your responsibility to track constructive sales, adjust the cost basis and report gains if any,” as exchanges “will not report constructive sales on their transaction history reports,” nor will such transactions appear “on the upcoming 1099-B forms.”

Chandrasekera concluded by warning:

“If enacted, this rule, along with the wash sale rule, will significantly increase the administrative burden for cryptocurrency taxpayers.”

The Ways and Means Committee authors wrote that the proposed changes would apply to “taxable years beginning after December 31, 2021.”
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