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The Slump in Bitcoin Allows Tax Play: Crypto Investors

Cryptocurrencies
Cryptocurrencies

The Bitcoins prices nosedived in December, the plunge in price has given an excellent opportunity for the investors to cash in right on the cusp of the new year. The fall was 18% right through Thursday, with a beating of $47,000 for every bitcoin.

The reason for this onslaught is the surging cases of Covid-19. Bitcoin wasn’t the only cryptocurrency that bore the brunt. Even cryptocurrencies like Ethereum have faced a slump.

Handling the slump

But the investors have dived to their advantage because, unlike the stock or the mutual funds, they have to obey the wash sale rules. Crypto investors will take in double benefits from this situation. When they sell crypto for a loss, the investors have the right to claim a tax benefit through tax-loss harvesting allowing investors to utilize loss to reduce or get rid of capital gains tax that is owned on earning investments sold for gains. Another advantage is to buy back the crypto they sold if there may be a rebound in price because of the volatility of cryptocurrency.

These benefits often are a matter of debate. Stock exchange rules categorically state that investors cannot buy identical or similar security within 30 days before or after the sale. If the investor breaches these rules, they are liable to a penalty. Under the present law, the IRS treats crypto just like property and not like stocks and bond trading, so crypto can easily get away from the wash-sale rules.

Why investors aren’t worried?

A financial expert has explained the situation of how an investor can completely manipulate the situation and even create a tax benefit. The loss on the books can also bring in some benefit when used expertly for convenience. Amidst this chaos in the market, the coin has witnessed a surge of 62%. Giving a great impetus for investors to return to investing in crypto.

The authorities are discussing ways to eliminate this loophole that investors are using to manipulate investments worth billions of dollars.

 

 

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