Here’s something to know about cryptocurrencies.
Because cryptocurrencies are classified as “property” rather than as securities, the wash-sale rule does not apply if you sell a cryptocurrency holding for a loss and acquire the same cryptocurrency before or after the loss sale.
You just have a garden-variety short-term or long-term capital loss depending on your holding period. No wash-sale rule worries.
This favorable federal income tax treatment is consistent with the long-standing treatment of foreign currency losses.
That’s a good thing, because folks who actively trade cryptocurrencies know that prices are volatile.
And this volatility gives you two opportunities:
Let’s take a look at the harvesting of losses with an example of "Lucky":
Observations:
Here’s what Lucky did:
Be alert.
Losses from crypto-related securities, such as Coinbase, can fall under the wash-sale rule because the rule applies to losses from assets classified as securities for federal income tax purposes. For now, cryptocurrencies themselves are not classified as securities.
Planning point.
If you want to harvest losses, make sure you hold a cryptocurrency and not a security.
Let us know if you have any questions about it.
*Info obtained from Bradford Tax Institute
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