Hi all,
I've been seeing a lot of posts suggesting people sell their crypto in this bear market to get some tax benefits.
Is this true.
With the current bear market, the value of major cryptocurrencies has gone down more than 90% from ATH. This has lead to a lot of unrealized losses for anyone who has entered cryptos in last one year. So, the suggestion by so-called 'Tax gurus' is to sell this cryptocurrency and realize those losses.
How will it help someone?
Losses on your cryptocurrency can be used to offset profits on stock market trading or other capital gains. Also, if you have more losses than offsetting other gains, you can carry forward them to next year.
The maximum amount of losses you can claim in a given tax year is $3000 (for individuals). So, people are suggesting to sell and realize losses to claim and reduce your tax bill.
What's wrong with this?
Everything sounds right until it's proven as wrong! If you are a believer in cryptocurrency, you cannot let go off your assets for mere tax purposes. In this case, you would be suggested to buy back immediately - but what's not told by these gurus is "price today is your cost-basis" - In case, if the price of cryptos shoot up next year or in future- then you will have tons of gains as the cost basis is low now.
So, if you are a believer, we wouldn't suggest you sell and buy back for simple tax benefits - but to HODL long term to claim as long-term gains and pay taxes by lower tax rates on long-term investments.
This article was written in collaboration with friends at BearTax, a cryptocurrency tax software for individuals and accountants.