The Bitcoin Tax Loophole - Palma Financial

Have you heard about the Bitcoin tax break? The bitcoin crash opens the door to a tax loophole for investors.

Everything started with 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 recently.

Let’s have an example:

Imagine yourself as a bitcoin investor who bought at the (around $65,000) and sold low (near $30,000) would have lost 54%, lot of money? Of Course!.

In your income taxes, Crypto losses are not the same as stocks and mutual funds. That’s because so-called wash sale rules don’t apply. It offers two benefits to crypto investors:

  1. They can sell crypto for a loss and then use that loss to reduce or eliminate capital gains tax on winning investments.
  2. Then, they can quickly buy back the crypto they sold to not 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.”

The so-called loophole exists because regulators don’t consider cryptocurrencies to be “securities.” Instead, the I.R.S. taxes them as property. According to financial advisors, the tax treatment could make a big difference for an asset as volatile as cryptocurrency has been in recent weeks.

Now, let’s retake the example of you, a bitcoin investor who bought high and sold low, incurring a $35,000 loss. This year, you sell stocks and mutual funds for a $35,000 gain. The bitcoin loss would erase taxes on the capital gains. Further, you could have re-bought bitcoin quickly near its $30,000 low and participated in any run-up. Its price jumped more than 10% on Monday. Some bitcoin bulls expect the asset to reach $100,000 by year-end. By comparison, a stock investor would miss out on 30 days of potential gains after a sale due to the wash sale rules.

Curious? Are you interested in cutting your income taxes this year? Let’s discuss more in a strategy session. Book Your Free Tax Assessment Here.