The cryptocurrency market has been on a wild ride this year. For some, that’s meant dramatic losses in their digital wallets that should be accounted for on tax returns. However, even the IRS appears unsure of how to treat these losses for tax purposes, although they have given some limited guidance  on the matter.
The general rule related to capital losses is that they are limited to $3,000 and any excess loss gets carried over to the next tax year. Crypto coins that have lost all or nearly all their value may encourage owners to “abandon” their holdings, and abandonment loss does not have the $3,000 capital loss limit. Of course, an “almost worthless” coin is not the same as a “worthless” coin, so it’s a very controversial and aggressive position, and there is no IRS guidance on abandonment losses as they pertain to cryptocurrency.
If you’re unsure how to handle the tax implications of losses to your crypto holdings, please contact your ShindelRock tax professional.