Crypto hacks reached their highest level in 2021, leading to many losses for investors, but is there a way for you to write off those losses?
According to the Crime Trends for 2022 report by Chainalysis, crypto hacks topped $14 billion, the highest amount ever, crossing the $7.8 billion registered in 2020.
However, the share of transactions that constitute illicit activity has reduced in the last two years to register only 0.15% of total transactions.
When these hacks happen, can you deduct your losses on taxes? Can you report stolen cryptocurrency? Is there a way to actually benefit from crypto losses? Let’s explore.
In this article:
How to calculate crypto losses?
To calculate crypto losses, you need to subtract the cost basis of your crypto trades from the total sales proceeds.
You then need to report the loss on your crypto trade since selling any crypto, for FIAT or another crypto, is a taxable event in the US.
Can I write off lost crypto?
If you lose crypto from hacks, you won’t be able to claim a loss. Crypto losses from hacks are considered personal casualty losses, which are not tax deductible in the US.
How to report stolen cryptocurrency
Since you cannot claim a personal loss on stolen cryptocurrency, you do not need to report it in your tax return or any other tax forms for crypto.
How do you record a crypto loss?
To register a loss, you can import your crypto trades into a crypto software that will determine your capital loss on trades automatically.
From there, you can generate tax reports with your capital gains and losses and file your crypto taxes.
Selling crypto at a loss and buying back
Currently, you can sell crypto at a loss and immediately buy it back, a process called loss harvesting. Investors who have a lot of gains from multiple crypto trades can sell some of their crypto for losses and instantly buy the crypto back and reduce their capital gains.
By reducing capital gains from selling crypto at a loss and buying them back, they can reduce their taxes for the year.
Crypto tax loss harvesting 2022
Crypto tax loss harvesting consists of selling one of your crypto holdings at a loss since you believe it won't go up and you have gains from other trades. By selling at a loss, you can reduce your capital gains and pay fewer capital gains taxes.
How to report crypto losses on TurboTax
If you determine your crypto losses with CoinTracking, you can then download your capital gain/loss report and import it to TurboTax to file your crypto taxes.
Here are the details on how to report your crypto losses from CoinTracking on TurboTax:
On CoinTracking, generate a tax report for the year
Click on “Load Report” and then select TurboTax from the options
If you have less than 2251 transactions (TurboTax limit), click on “Download your capital gains data” to download the file for TurboTax
If you have more than 2251 transactions, download the “capital gains data summarized”
Go to your TurboTax account
Select “Federal” in the left navigation bar and “Stocks, Cryptocurrency, Mutual Funds, Bonds, Other” at the right
Select “YES” on the page “Did you sell any of these investments in Year?”
Select “Cryptocurrency” and “Continue”
Select “Try another way”
Select “Upload it from my computer” and “Continue”
Select “Other” under Crypto service, add CoinTracking as “Name” and “Continue”
Upload your CSV file.
How to Enter Your Stolen or Lost Coins on CoinTracking:
The best crypto tax software: CoinTracking
The best crypto tax software in the market is CoinTracking.
You can import your trades using CSV or API, track your gains/losses, and generate tax reports according to your preferred accounting method.
CoinTracking is your full crypto tax solution for:
DeFi and NFT support with our ETH+DEX importer.
Importing your Binance Chain, Binance Smart Chain, and MATIC transactions.
25+ advanced reports, including which coins offer you a tax-free rate.
Automatic capital Gains, according to 12 accounting methods (e.g., FIFO, LIFO, HMRC, ACB), accepted worldwide.
Generating complete Tax Reports in your country.
Moreover, CoinTracking can easily classify all your earnings from yield farming, liquidity pools, crypto staking, and much more.
Crypto taxes with no errors: CoinTracking Full Service in the US.
CoinTracking also offers a Full Service for US traders. A crypto reconciliation tax expert from Polygon Advisory Group, a leading US crypto tax firm, will review your CoinTracking account, help fix any errors, and ensure you submit your crypto tax reports error-free.
Do you have any crypto tax questions? Check the best guides:
How are rebase token protocols taxed?
Do you pay taxes on fan tokens?
Do you pay taxes when trading stablecoins?
How is Yield Farming Taxed?
DeFi Taxes: The Complete Guide.
How to save taxes with a Bitcoin IRA.
Do you pay taxes for receiving Bitcoin tips?
Uniswap Taxes Guide
How to calculate taxes with Bitcoin dollar-cost averaging?
FIFO for crypto taxes? Implications of accounting methods.
NFT Taxes: The Complete Guide.
Is Bitcoin taxable? The ultimate guide for 2021 taxes.
This post is part of the Crypto Taxes AMA series. Follow our weekly AMAs on Twitter where our expert CPA, Sharon Yip answers your crypto tax questions. You can download 35+ AMA crypto tax reports for free.
Disclaimer: All the information provided above is for informational purposes only and should not be considered as professional investment, legal, or tax advice. You should conduct your own research or consult with a professional financial advisor when investing.