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Breaking News: Bitcoin Price Slips Below $108,000: Peter Schiff Anticipates ‘Brutal’ Bear Market, CZ Responds
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Breaking News: Bitcoin Price Slips Below $108,000: Peter Schiff Anticipates ‘Brutal’ Bear Market, CZ Responds

Confusing U.S. Tax Laws Lead to $5 Billion In Unrealized Crypto Losses

Tony "The Bull" Severino
Tony "The Bull" Severino
6 years ago
3 mins read

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Last year, the crypto community pointed fingers at tax payers liquidating assets in order to cover inflated tax bills due to the substantial gains realized during the 2017 Bitcoin bull run as among the chief reasons the bear market had begun.

In 2018, however, the inverse happened, and most cryptocurrency investors suffered massive losses as the price of Bitcoin and other cryptocurrencies fell by as much as 80-90% in most cases. With tax season rolling around again, investors should be liquidating assets in order to lock in realized losses that can be claimed on an individual’s taxes, offsetting other aspects of the individual’s tax bill, or possibly leading to a return.

However, new data reveals that only 34% of losses American cryptocurrency investors saw in 2018 have been realized, suggesting that most Americans don’t understand crypto-related tax laws, and don’t realize they can claim the losses on their taxes.

Nearly Two-Thirds of American Crypto Losses Could Go Unrealized

According to credit monitoring services company Credit Karma, United States citizens have suffered losses related to their cryptocurrency investments to the tune of $5 billion. However, only about a third of those $5 billion in losses will be realized losses, or roughly $1.7 billion.

When an individual American tax payer invests in a cryptocurrency, a cost basis is established for tax purposes. Selling an asset also triggers a taxable event. How much that asset has appreciated – or in the case of the 2018 bear market that is still currently ongoing, how much that asset has depreciated – at the time it is sold, determines what the individual is responsible for tax-wise. If an asset is never sold, the gains or losses are only paper gains and losses, meaning they cannot be claimed on an individual’s taxes, but may still be reflected in one’s portfolio.

Related Reading | U.S. Lawmakers Ask IRS for Clarity on Crypto Tax Laws

The data suggests that either Americans don’t understand that assets must be sold to trigger the taxable event and lock in unrealized losses that can be claimed on their taxes, or the HODL mentality has made it so they simply won’t sell their assets for any reason – not even to lock in unrealized losses for tax reasons.

Credit Karma general manager Jagjit Chawla says it’s the former.

“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,” he explained.

The survey revealed that respondents were confused in general, with more than half believing their losses were too small to make an impact, while others didn’t even know they were required to file their cryptocurrency losses on their taxes. Not doing so could lead to severe penalties. Some claimed they didn’t even know how to file their crypto losses.

U.S. Crypto Tax Law Is Complicated, Varies By Duration of HODL

Complicating things further, in the United States, cryptocurrencies are treated as property and are subject to capital gains tax the same way real estate is. Capital gains tax rates vary by income levels, and are classified as “short-term” and “long-term” depending on how long the asset has been held by the owner. Each classification also has different rates.

Related Reading | Former U.S. Representative Ron Paul Pushes for Crypto Tax Exemption 

Locking in realized cryptocurrency losses could allow war-torn investors to claim up to $3,000 in losses on their tax bills. Losses exceeding $3,000 can be carried over into the following tax year. Investors can also use carried over losses to offset potential tax gains on next year’s tax bill, if the cryptocurrency market eventually turns around and a new bull run begins this year.

When investing in cryptocurrencies, be sure to also speak to a certified public accountant that is well-versed in capital gains tax law, and at least has a familiarity of cryptocurrencies. Given how new the technology and asset class, this may be like finding a needle in a haystack, but considering how important taxes are to any individual, knowing your cryptocurrency taxes are handled properly is worth the extra effort.

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Tony "The Bull" Severino
Tony "The Bull" Severino

Tony "The Bull" Severino

Tony "The Bull" Severino, CMT, is a distinguished figure in the cryptocurrency analysis sector, renowned for his in-depth technical expertise and innovative approach to market trends. As the Head of Research at NewsBTC, Tony leads a team dedicated to providing cutting-edge insights and forecasts, helping both novice and experienced traders navigate the complexities of the crypto market.
A seasoned Chartered Market Technician, Tony's prowess in identifying and capitalizing on market patterns is unmatched. His academic and professional journey in market analysis has firmly established him as a leading authority in technical trading strategies. Tony’s approach is heavily influenced by the principles of Elliott Wave Theory, a method known for its rigorous assessment of investor psychology and price movements.

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Beyond his role at NewsBTC, Tony is the visionary founder of CoinChartist.io, an educational platform aimed at demystifying the nuances of cryptocurrency trading. CoinChartist.io serves as a valuable resource for traders seeking to enhance their technical analysis skills. The platform offers a range of learning tools and resources designed to empower traders with the knowledge to make informed trading decisions.

In addition to his educational initiatives, Tony is a prolific author and a dominant voice in the crypto community. He writes the CoinChartist VIP newsletter, a weekly dispatch that has become a staple among crypto enthusiasts, revered for its insightful analysis and actionable trading advice. This newsletter has consistently ranked as a best-seller on SubStack, boasting thousands of subscribers who rely on Tony’s expertise to guide their trading strategies.

Tony is also celebrated for his literary contributions to the field. He is the author of the highest-rated Crypto Trading Journal on Amazon.com, a testament to his ability to communicate complex trading concepts in an accessible manner. This journal is widely regarded as an essential tool for traders aiming to track their progress and refine their strategies.

Before his ascent in the financial analysis world, Tony honed his skills in journalism. His background in this field has endowed him with a unique ability to present intricate market dynamics in a clear and compelling manner, making his insights highly sought after by a broad audience that ranges from casual readers to professional traders.
His professional affiliations underscore his commitment to excellence and continuous learning. As a partner of Elliott Wave International and TradingView, Tony collaborates with other leading experts to enhance his knowledge and skills. His active membership in the CMT Association further aligns him with the highest standards of industry practices and ethics.

Tony’s nickname, "The Bull," aptly reflects his aggressive and optimistic outlook on the cryptocurrency markets. His forecasts often anticipate significant upturns, earning him a reputation for bullish predictions that have frequently led to lucrative outcomes for those who follow his advice.

In summary, Tony "The Bull" Severino, CMT, is more than just a technical analyst; he is a mentor, educator, and innovator whose influence in the cryptocurrency space continues to grow. His dedication to advancing the understanding of market forces and his commitment to providing high-quality, reliable analysis make him a pivotal figure in the world of cryptocurrency trading.

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Disclaimer: The information found on NewsBTC is for educational purposes only. It does not represent the opinions of NewsBTC on whether to buy, sell or hold any investments and naturally investing carries risks. You are advised to conduct your own research before making any investment decisions. Use information provided on this website entirely at your own risk.

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Created by industry experts and meticulously reviewed
The highest standards in reporting and publishing
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