Crypto investors have an unusually good opportunity to harvest their tax losses by the end of 2023.
Crypto tax-loss harvesting is a strategy that involves selling crypto assets at a loss to offset capital gains from other assets, thus reducing your tax liability.
Cryptocurrencies are capital assets, which means realizing a loss on a crypto asset owned for a year or longer fully offsets a long-term capital gain; realizing a $1 crypto loss wipes out $1 of capital gains taxes that would otherwise be owed. Crypto losses are realized only after they are sold.
Prices on stocks, homes, and other capital gain assets up sharply in 2023 and the economy growing much faster than expected, realizing cryptocurrency losses and writing them off against capital gains on stocks, real estate, private investments, or other capital assets is a silver linings playbook for putting a cryptocurrency loss behind you in the best way possible.
In addition, investors are permitted to buy back crypto assets at a lower price after harvesting the losses without triggering the “wash-sale” rule, which forbids buying a substantially identical investment 30 days before or after selling it and realizing a tax loss.
The silver linings playbook for cryptocurrency losses requires careful attention before the end of 2023 to a highly technical topic where expert tax advice often is best.