Tax loopholes create opportunity for Bitcoin investors

Greg Iacurci

Crypto investors may be shell-shocked by a recent plunge in prices. But that sell-off has a silver lining: It opens the door to a money saving tax strategy.

Popular cryptocurrencies like bitcoin and Ethereum shed more than half their value in volatile trading over the past month or so.

A bitcoin investor who bought at the mid-April peak (around $65,000) and sold low on Wednesday (near $30,000) would have lost 54%, for example.

But crypto losses are treated differently than those of stocks and mutual funds. That’s because so-called wash sale rules don’t apply, according to financial advisors.

This offers two benefits to crypto investors: They can sell crypto for a loss, and then use that loss to reduce or eliminate capital gains tax on winning investments. Then, they can quickly buy back the crypto they sold so as not to miss out on a subsequent rebound in price.

The first benefit (called “tax-loss harvesting”) is allowed for stocks and other securities. However, the second benefit isn’t — stock investors aren’t allowed to buy the same or similar security within 30 days before or 30 days after a sale without triggering penalties.

“This is a loophole, so to speak,” Ivory Johnson, a certified financial planner and founder of Delancey Wealth Management in Washington, said of crypto relative to tax rules. “It’s heads I win, tails you lose.”

The so-called loophole exists due to the fact that regulators don’t consider cryptocurrencies to be “securities.” Instead, the IRS taxes them as property, Johnson said.

The tax treatment could make a big difference for an asset as volatile as cryptocurrency has been in recent weeks, according to financial advisors.


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