Investors may need all the help they can get from the tax code's capital loss rules.
Cryptocurrency investors have been enduring a year where their holdings have plunged in value when some hoped the asset could be a hedge against red-hot inflation.
For two years, the IRS has been asking whether taxpayers have bought or sold cryptocurrency in the main “Form 1040” document that taxpayers submit for their federal income taxes. The inquiry asks about other potential crypto-related tax events too. It’s a “yes” or “no” question that taxpayers can’t leave blank.
“For 2023, the IRS proposes asking: ‘At any time during 2022, did you: receive ; or sell, exchange, gift, or otherwise dispose of a digital asset ?’” Apart from cryptocurrency such as Bitcoin BTCUSD or Ethereum ETHE ETHUSD , using a phrase like “digital asset” raised questions if the IRS was also asking about nonfungible tokens and gaming currency like Fortnite’s V-Bucks or the Robux offered on Roblox RBLX , AICPA noted.
Those instructions, it added, should specify that an individual filer does not have to check “yes” if their child or dependent had their own cryptocurrency-related tax events generating income below the filing thresholds. “Investors can use capital losses to offset their gains. If loses exceed gains — and that might be the unfortunate case for some hard-hit cryptocurrency investors — a taxpayer can claim up to $3,000 in capital loses.”
Still, Metras doesn’t know if there’s ever going to be a crystal-clear, concise and perfectly phrased way the IRS can quiz about cryptocurrency holdings. The landscape keeps changing so fast, he noted.
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