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$5 Billion in Crypto Got Loss in 2018 US Tax Season

Maya Mandzikasvili | Jan. 16, 2019
$5 Billion in Crypto Got Loss in 2018 US Tax Season

January 16, 2019 | AtoZ Markets - Last year, the crypto community claimed that the taxpayers liquidating assets to cover inflated tax bills due to the gains made during the 2017 Bitcoin bullish run are one of the main reasons for the start of a bear market. However, in 2018 most of the cryptocurrency investors experienced huge losses since the price of Bitcoin and other cryptocurrencies in most cases fell by 80-90%.

Reimbursed assets might lead to the tax refund

Due to the upcoming tax season, investors are recommended to liquidate their assets. This will help to lock in realized losses that may be claimed on the individual's taxes. Such tactics may contribute to the compensating of other aspects of the tax invoice or lead to a refund. Nevertheless, new data shows that only 34% of the U.S. investors in cryptocurrency losses were realized in 2018. This may indicate that most of the Americans do not understand the tax laws related to the cryptocurrency, and do not realize that they can claim losses on their taxes. According to Credit Karma which provides credit monitoring services, US citizens overall lost around $ 5 billions of their investments in cryptocurrency. Only about a third of those $ 5 billion in losses, as Credit Karma assumes, will be realized.

How the tax law works in the U.S.

When a taxpayer invests in the cryptocurrency, the base value is set for tax purposes. The sale of an asset also triggers a taxable event. The extent to which this asset is valued - or how much this asset depreciated - at the time of its sale determines which person is responsible for paying taxes. If the asset is never sold, the profits or losses are only paper profits and losses and they cannot be claimed on individual taxes, but can still be reflected in the portfolio.

Financial analysts suggest that Americans might not understand that assets must be sold in order to trigger a taxable event and fix unrealized losses that can be claimed on their taxes. Also, it is suggested, that due to the HODL mentality investors would not sell their assets for any reason is not even to fix unrealized losses for tax. Credit Karma CEO Jaggit Chawla explained:

"Despite the fact that those who sold their bitcoin at a loss can usually claim a tax deduction, we found that, before our survey, 61% of respondents who lost money on bitcoin did not really realize that they could get a tax deduction for bitcoin loses "

Certain investors' knowledge is limited

According to a recent survey among investors, more than half believe that their losses were too small to have an impact, while others did not even know that they were obliged to register their losses in cryptocurrency in their tax bill. Failure to comply with this requirement may result in serious fines. Some argued that they did not even know how to register their crypto losses. The situation is complicated by the fact that in the United States cryptocurrencies are treated as property and are subject to capital gains tax in the same way as real estate. Capital gains tax rates vary by income and are classified as “short-term” and “long-term” depending on how long the owner has held the asset. Each classification also has different indicators. Locking realized losses of cryptocurrency may allow investors to claim up to $ 3,000 in losses on their tax papers.

Losses over $ 3,000 can be transferred to the next tax year. Investors can also use the transferred losses to offset the potential tax return on the tax bill next year, if the cryptocurrency market eventually unfolds and a new bullish growth begins this year.

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Disclaimer: The views and opinions expressed in this article are solely those of the author and do not reflect the official policy or position of AtoZ Markets.com, nor should they be attributed to AtoZMarkets.