Credit Karma: Confusing US Crypto Tax Laws May Lead to $1.7 Bln In Losses Go Undeducted
Back in 2018, the cryptocurrency community in the United States decided to sell assets and pay the large tax bills after the massive bull run experienced in 2017. In 2017, Bitcoin (BTC) moved from under $1000 up to $20,000 by the year end, allowing several users to become millionaires in just a year.
However, in 2018, the market experienced a bear trend that made Bitcoin and other digital assets lose more than 80% of their value. Indeed, some virtual currencies lost more than 95% of their price. Due to the fact that the tax season is coming once again, investors would have to liquidate assets and lock in realized losses.
According to new data, just 34% of the losses that American investors experienced in 2018 have been realized. That means that several individuals in the country still do not understand how crypto tax laws work. It is possible for investors to claim the losses on their taxes.
As per data provided by the services company Credit Karma, US citizens have experienced losses of $5 billion after the bear market that affected the whole crypto space. However, just $1.7 billion of these losses will be realized losses.
Taxpayers in the United States trigger a taxable event as soon as they sell a crypto asset. That means that depending on how much the asset has appreciated or depreciated is what will determine which is the amount of taxes that the investor must pay. However, if the assets are not sold, they are just paper gains and do not trigger any taxable event.
Jagjit Chawla, the general manager of Credit Karma commented:
“Even though those who sold their Bitcoin at a loss can typically claim a tax deduction, we found that before taking our survey, 61% of respondents who lost money on Bitcoin didn’t actually realize they could get a tax deduction for Bitcoin losses.”
Some taxpayers did not know that they could even register their losses on their taxes, while others believed that the losses they had were too small to request a tax deduction.
By locking in cryptocurrency losses, users and investors can receive a tax reduction of $3,000 on their tax bills. If the funds lost exceed $3,000 they can be included the next year. This would be very positive if the market moves towards a new high or starts to grow in 2019.