RALEIGH, N.C. (WNCN) — If you lost money in the massive cryptocurrency crash, there could be a way to recoup some of those losses at tax time, an expert says.

Bitcoin is down 70 percent in the past eight months, a massive bust after many retail investors expecting a sure-thing hedge against inflation wound up sinking their fortunes into crypto as it popped into the mainstream.

A study by Pew in November found about 90 percent of Americans are at least a little familiar with cryptocurrency, and about 1 in 6 people have invested in, traded or used it. The most likely demographic: Men younger than 30, with 43 percent of them saying they have done one of those three things with it.

“A lot of people were interested in what you’re supposed to do once your cryptocurrency has increased in value,” said Nathan Goldman, an assistant professor at N.C. State’s Poole College of Management and an expert in tax policy. “And I think a lot of people in general just weren’t necessarily thinking about what happens when cryptocurrency goes down in value.”

When it comes to taxes, cryptocurrency is treated like a capital asset — think a stock or a commodity like gold, Goldman said.

“So if you hold an asset like a stock or cryptocurrency and you sell it at a loss, there’s actually tax provisions in place that allow you to get some of those tax benefits back,” he said.

“For instance, if you sell Apple stock at a loss of $10,000, every year for the next three or four years, you get to deduct up to $3,000 against your ordinary income, which is going to lower your tax liability,” he said.

The same goes for crypto — with one exception. The wash-sale provision, which makes you give up some of those tax benefits if you buy a stock less than 30 days after you recently sold it at a loss, does not exist when dealing with actual cryptocurrency, Goldman said.

“You could actually sell it and repurchase it right away,” he said. “And what this does is it resets your basis in the stock. So you get the loss, you get to deduct the losses. And then you go back to holding the cryptocurrency that you previously had.”

Goldman says people who are holding crypto at a loss have three options:


Hey, it might go back up in value — and from a tax perspective, it doesn’t cost you anything until you sell it at a profit.


Hey, it might keep falling in value — and Goldman says it’s worth at least considering the tax benefits of selling at a loss.

“Selling it can be appealing for a few reasons — one, you could get some of your liquidity back,” Goldman said. “So if you had a lot of cash tied up, and you needed some of that money back, you can go in and get back, but the end, but the other thing that might make it a little bit appealing is that you do get quite a bit of significant tax benefits by selling it at a loss.”

For example, someone who has $100,000 in annual taxable income but lost $12,000 in crypto this year would be able to deduct $3,000 of that loss each year over four years.

That would result in a total savings of $2,880 down the road.


This was popular when crypto was surging, but Goldman says one thing is a little different about donating a loss asset.

“You don’t actually want to donate the cryptocurrency directly,” he said. “You want to go ahead and sell it, recognize the losses and then donate the proceeds of those assets.”