Amidst a dreadful year for crypto investors, a significant upside to the dismal performance of their assets could be that the losses could end up saving them a significant amount of tax if they understand how to record and file appropriately. Under the U.S. tax code, bitcoin investors who got “rekt” in 2018 can use these losses to mitigate their tax burden for the current financial year and beyond.
Key to this is the fact that the United States Internal Revenue Service (IRS) classifies cryptocurrency as a commodity rather than currency, and so crypto trading transactions are taxed in a manner similar to how sales of stocks, land and similar assets are treated.
The tax that is relevant to this asset category is Capital Gains Tax, which goes up to 40.8 percent for short term gains and 23.8 percent for long term gains. It is levied whenever an asset is sold for more than what the holder purchased it for. In other words, if an investor bought 10 BTC a couple of years ago at $1,500 each and they decide to sell at $4,000 each in 2018, a capital gains tax will be levied on the $25,000 profit they would realise.