The crypto crash of 2022 is well documented. Bitcoin, Ethereum, and other cryptocurrency has declined as much as 80% from their all-time highs. While we wish we could tell you what the future holds for cryptocurrency, the reality is that we can’t. However, we can tell you what the current reality is, and we’d like to believe there is a bright side to the downturn — that being, loss harvesting for cryptocurrency.
As the law stands currently, taxpayers can harvest their crypto losses and offset those losses against other gains. What makes this dynamic unique, at least for now, is the fact that crypto, by IRS regulation, is treated as property — not securities. Securities are subject to wash sale loss limitations, while property is not. The wash sale loss limitations prevent a person from recognizing a loss if the same or similar security that is sold, is purchased within 30 days before or after the sale. Effectively, this negates a person’s ability to harvest losses if they intend to hold on to a position.
The same wash sale limitations do not apply to crypto, at least not currently. This means that those who have realized significant losses in crypto or who plan to remain invested in that space may want to consider loss harvesting. Effectively, a taxpayer could lower their taxable income by taking advantage of the crypto crash while staying invested in crypto.
Market Street Partners recognizes that each client’s situation is unique. We are happy to talk through your particular situation and evaluate whether or not this might be an opportunity to lower your taxes in 2022. Request a free consultation.
- Mark Huffines