In the last two weeks, we’ve seen some of the biggest plunges in crypto since the 2017–2018 Crypto Winter…
In that time, bitcoin alone fell nearly 50%, while Ethereum fell as much as 55% before recovering some of its losses.
And for many crypto holders, the volatility has been too much to stomach. Some have joined the larger selloff and cashed out… others anxiously watch their portfolio and look for ways to recoup or limit their losses.
Here at PBRG, we see the current crypto volatility as a temporary bump in the path to 10x, 50x, and even 100x returns…
Here’s what Daily editor Teeka Tiwari told readers this past December during the last bout of significant crypto volatility:
Assets poised for massive growth in their early days are highly volatile.
So volatility is the price of admission you pay for life-changing gains. You can’t expect huge 100x swings to the upside… without downside volatility, too.
But right now, people are forgetting that… and they’re probably going to pay the price.
Five months later, bitcoin and Ethereum soared as much as 241% and 655%, respectively, to new record highs.
So if you’ve been holding through the recent volatility, stay the course… I’m confident the recent losses will only be a blip when we hit new record highs down the road.
But if you can’t continue to hold your losing positions, there’s a way to turn your crypto losses into immediate tax savings – and all while keeping possession of your crypto…
It involves a loophole under Section 1091 of the IRS code known as the “wash-sale” rule.
A wash sale is when an investor sells a security at a loss to claim a tax write-off… only to repurchase the same (or nearly identical) security within 30 days of the sale.
The IRS prohibits such sales with stocks…
However, this rule doesn’t cover cryptos, which are treated as “property.”
This means they’re not subject to a holding period for tax-swap sales.
So if your current losses are too much to stomach, you may want to take advantage of this loophole.
Today, I’ll show you how. But first…
How to “Wash Sale” Your Cryptos
I wanted to find out why conducting a wash sale now would be good for crypto owners.
So, I spoke to Shehan Chandrasekera, head of tax strategy at CoinTracker. It uses software to track crypto portfolios… calculate capital gains and losses… and harvest tax losses with a click of a button.
Shehan is one of a handful of CPAs in the U.S. recognized as an expert on crypto taxation.
Here’s what he told me:
Since cryptocurrencies are not treated like stocks and securities by the IRS, they are not subject to wash sales rules. This allows you to harvest tax losses without honoring the 30-day rule that stocks are subject to.
Here’s an example of how a wash sale works…
Say you purchased Ethereum (ETH) at $4,000, and now it’s only worth $2,000.
In this hypothetical, you can sell your ETH right now to harvest $2,000 worth of capital losses per coin. And you could quickly get back into the same position at $2,000 per coin to maintain your position.
Since cryptocurrencies are treated as property, the asset class allows you to harvest tax losses more aggressively than stocks. (With stocks, you must wait 30 days to buy back the same position. If you don’t wait, the IRS will disallow the loss for tax purposes.)
Keep in mind that there are various fees associated with transferring and trading crypto. So you’ll want to make sure these costs are less than what you’ll write off in taxes.
And if you don’t use up all your losses by the end of the year, you can roll them forward into future tax years. And if you don’t have an offsetting gain, you can still take up to a $3,000 loss in the current year.
Consider These Three Steps Before Acting
Remember, this information is for general tax purposes only.
And crypto is still somewhat of a “gray area” in terms of taxation. So we strongly encourage you to consult a tax professional before conducting a crypto wash sale.
But if you want to consider this strategy, here are some steps to help with the process:
Talk to your tax adviser: Tell them what you’re contemplating. Could you use some losses to offset gains on a one-for-one basis? There’s a chance your CPA may not even know this avenue exists.
Consult a tax consulting crypto firm: CoinTracker is one option. ZenLedger is another.
Know your situation: Before you reach out, know which cryptos you own, the quantity, the price you paid, your tax bracket, etc.
This tax loophole allows you to benefit from falling crypto prices (in the past or the future). You’ll still be able to keep the same cryptos you started with… just with a new cost basis.
And you don’t have to wait until year-end to employ tax-loss harvesting. This tax planning strategy can work at any time.
Remember, crypto volatility is the price of admission for life-changing crypto gains… but if you’re looking to recoup or limit your crypto losses, a wash sale might be right for you.
Analyst, Palm Beach Daily
P.S. While volatility continues to shake much of the crypto market, a long-term $30 trillion crypto-tech revolution is just getting started…
And if Teeka’s research is correct, it’ll be the No.1 investment of the decade… like buying Microsoft in the ‘80s… Amazon in the ‘90s… and bitcoin in 2010.
Any one of these could have made you a millionaire many times over, starting with very little…
That’s why Teeka recently sat down for an exclusive interview where he shared the details on this No. 1 investment. Click here to watch.