Tax question - Lost my ass, but now feel like I have a tax opportunity?

[MNDan]

I cashed out some long term investments with significant capital gains in order to invest in Bitcoin. Sadly, I did this in the spring of 2014, so my basis is around $700 per coin and obviously I'm down around half my investment.

However, it seems like I now have an opportunity to offset the taxes I would normally have to pay on my long term capital gains by just selling my Bitcoins at a loss, record the loss on my taxes against my gains, and then rebuy my Bitcoins (HODL!). My new basis would then be the current price (~$340) and I'll be able to both offset the taxes owed on my gains, and deduct $3000 in losses per year for the next couple of years (until all the losses have been accounted for) if I don't have any more gains to offset.

Am I thinking about this right?

Also, moderators feel free to put this somewhere else if it doesn't belong here - Economics? Speculation?

thanks for any advice!

dan

[1714768741]

1714768741

[djjacket]

Best bet is to tax to a tax adviser.  What you are describing could be considered a 'Wash Sale' and you cannot claim the losses in this case.  I know for stock transactions, you cannot rebuy the stock within 30 days or it is considered a wash sale.

 

[MNDan]

Looks like I would have to wait 30 days to rebuy - great to know! Thanks!

http://en.wikipedia.org/wiki/Wash_sale

[Ron~Popeil]

Depending on your feelings toward the IRS etc., you could buy back on local bit coins to avoid the resulting liability. Use cash and there is no proof the transaction took place. Again it depends on your thoughts about circumventing taxation etc. but there are a lot of people that do it that way.   

[bitnanigans]

Personally, I would hold and wait for the price to go back up. But it's best to speak to a tax adviser for this sort of thing.

[charliemaggot]

What you are describing could be considered a 'Wash Sale' and you cannot claim the losses in this case.  I know for stock transactions, you cannot rebuy the stock within 30 days or it is considered a wash sale.

Wash sales aren't applicable to Bitcoin, only stocks and securities, so ignore that.

Yes, what you are suggesting is fine. If you want to claim a loss sell and buy back, however, be aware of the implications.

1) You'll lose money because of the difference in buy and sell price, as well as fees.
2) You'll reset the cost basis to that date, so if you make any gains you'll have to wait another year to get the long-term lower rates.
3) As you mention, you can only deduct up to $3,000 against any income (after reducing any other gains) per year. So if you have a $9,000 loss, it's going to take 3 years to it back.

Use https://bitcointaxes.info, which can show you how much of a loss you would make, so you can take these figures to a tax professional for proper advice.

[Ron~Popeil]

What you are describing could be considered a 'Wash Sale' and you cannot claim the losses in this case.  I know for stock transactions, you cannot rebuy the stock within 30 days or it is considered a wash sale.

Wash sales aren't applicable to Bitcoin, only stocks and securities, so ignore that.

Yes, what you are suggesting is fine. If you want to claim a loss sell and buy back, however, be aware of the implications.

1) You'll lose money because of the difference in buy and sell price, as well as fees.
2) You'll reset the cost basis to that date, so if you make any gains you'll have to wait another year to get the long-term lower rates.
3) As you mention, you can only deduct up to $3,000 against any income (after reducing any other gains) per year. So if you have a $9,000 loss, it's going to take 3 years to it back.

Use https://bitcointaxes.info, which can show you how much of a loss you would make, so you can take these figures to a tax professional for proper advice.

Excellent points. I had assumed the wash rule would apply. I haven't taken an accounting class since college so my knowledge is quite limited.

[ANTIcentralized]

What you are describing could be considered a 'Wash Sale' and you cannot claim the losses in this case.  I know for stock transactions, you cannot rebuy the stock within 30 days or it is considered a wash sale.

Wash sales aren't applicable to Bitcoin, only stocks and securities, so ignore that.

Yes, what you are suggesting is fine. If you want to claim a loss sell and buy back, however, be aware of the implications.

1) You'll lose money because of the difference in buy and sell price, as well as fees.
2) You'll reset the cost basis to that date, so if you make any gains you'll have to wait another year to get the long-term lower rates.
3) As you mention, you can only deduct up to $3,000 against any income (after reducing any other gains) per year. So if you have a $9,000 loss, it's going to take 3 years to it back.

Use https://bitcointaxes.info, which can show you how much of a loss you would make, so you can take these figures to a tax professional for proper advice.

I don't think wash sales only apply to "securities" I am fairly certain that the rules regarding wash sales apply evenly across all assets that you must pay capital gains on.

3 is not applicable to the OP because his losses from bitcoin will be used to offset his long term capital gains as mentioned in his OP.

I personally do not think it is a good idea from a tax perspective because your capital gains were long term and are generally taxed at a rate of 20%, while your short term capital gains will be taxed at your marginal tax bracket (as high as 36%). If you use short term capital losses to reduce long term capital gains then you are essentially loosing out on the difference between the two tax brackets. It would be more beneficial if you had short term capital gains that you could offset with long term capital losses

[charliemaggot]

I don't think wash sales only apply to "securities" I am fairly certain that the rules regarding wash sales apply evenly across all assets that you must pay capital gains on.

http://www.irs.gov/publications/p550/ch04.html#en_US_2013_publink100010601. That's not to say they shouldn't, but they don't.

Obviously he needs to work out the difference in gain rates, but without any specifics it's why he should seek advice as whether claim the losses this year or next. His "significant capital gains" are all relative, and may be wholly in the 0% rate for all we know.

[ScryptAsic]

I don't think wash sales only apply to "securities" I am fairly certain that the rules regarding wash sales apply evenly across all assets that you must pay capital gains on.

http://www.irs.gov/publications/p550/ch04.html#en_US_2013_publink100010601. That's not to say they shouldn't, but they don't.

I would be interested in know how the IRS defines a "security". I would say there is still an argument that the IRS could consider bitcoin to be a security. They gave examples of securities as being stocks, bonds, treasuries. One thing I did not see was commodities like gold, and oil (which I would think would also fall under the wash sale rule - at least using logic). 

Obviously he needs to work out the difference in gain rates, but without any specifics it's why he should seek advice as whether claim the losses this year or next. His "significant capital gains" are all relative, and may be wholly in the 0% rate for all we know.

I would personally not consider any capital gain that would keep my income low enough to still be able to pay 0% taxes on it to be "significant" but I do agree that every person's situation is different and this may be a possibility

[Searing]

I cashed out some long term investments with significant capital gains in order to invest in Bitcoin. Sadly, I did this in the spring of 2014, so my basis is around $700 per coin and obviously I'm down around half my investment.

However, it seems like I now have an opportunity to offset the taxes I would normally have to pay on my long term capital gains by just selling my Bitcoins at a loss, record the loss on my taxes against my gains, and then rebuy my Bitcoins (HODL!). My new basis would then be the current price (~$340) and I'll be able to both offset the taxes owed on my gains, and deduct $3000 in losses per year for the next couple of years (until all the losses have been accounted for) if I don't have any more gains to offset.

Am I thinking about this right?

Also, moderators feel free to put this somewhere else if it doesn't belong here - Economics? Speculation?

thanks for any advice!

dan

talk to a CPA....I got backed into being a legal miner thru a large bank error (said i did 90k of wire xfers vs my real 9k) sorta had to fess up and file...it was fixed in a day
but them's the breaks I'm a legal miner usa

did not due to equip purchases in 2013 have to pay any taxes and unlikely with what i've managed to mine this year any either with deductions of equip/biz stuff
 plus the continuing equip depreciation (under the 2013 IRS act
bitcoin miners are considered computers so they can be depreciated against gross income 100% over 5 years..this comes out to 25% in real money you can apply to your
tax burden each of those years)

so again unlikely to pay any taxes this year...got out of 4K taxes due complete for majority of my coin last year due to equip...now just ride it out another 3 years as a biz
total of 5 years is good according to my cpa show i'm legit home biz etc not a hobby

now...i'm not sure on this but i suspect that the irs taxed my coin mined at 1100 bucks last dec I COULD sell such and take a capital gains loss...just saying it may be an option

i likely will just hold (hey btc works or it don't is my motto)

BUT I can get the equip depreciation of 25% .this has been very helpful to those who got a lot of GPU equip late in 2013 or 2014 saved their butt or so I'm told

anyway essentially after this year have to play this game 3 more years as a biz...and I should be able to get 25% back on my equip purchases

i only plan on mining enough these last 3 years to show some revenue to pay the irs (maybe)..show revenue stream don't ya klnow
 25% but that can be minimal..i mean i can certainly justify minimal on that
with the cost of equip and such and btc price etc...so will put something hobby miner wise up to show i'm a legit biz but basically will use those 3 years to run out my equip deductions


anyway I got backed into this (no choice) you'll have to decide if it is correct to do in your case...but me i'm kinda stuck but so far it may be a blessing

out of the 17.5k i have in equip I can get the next 3 years approximately  $4375  back on such (all 5 years)...not counting other home office biz expenses etc so my real cost in equip is

$13125.00 seeings how last year I could have paid as much as 4k (2013) and did not have to ..(verified by IRS on amended return letter from them they
accepted my revised tax return and said as much) I made like 40 of my btc last year 2013 thus only thing i have to pay for is coins made this year which
with my no roi titan and other jupiter from 2013 around maybe 20 coin? 25% mined to IRS as increase in gross income at 350 usd that is 7K and I'm sure I
have enough in deductions to even that out with my rolling equip deductions...so again a wash

so it is all working well......and it makes the dang no roi no refund titan bath i will take at 10,131.80 much better at $7598.85 cost instead much better indeed....

anyway my lot backed into such..but check with a CPA

WORD OF CAUTION I was backed into this and making due as best I can under the circumstances as a legal miner in usa and home biz......my situation is NOT
normal...but this is what is going on so far...i've been managing to get around the 25% on mining income the IRS expects you to report pay 25% tax on

just saying my situation and remember the above is me NOT yet looking into the fact (or need to) to sell said 1100 coin i mined last 2013 at a capital gains
loss to 350 that is another tax trick to ask your CPA .....in addition to the equip depreciation tricks above

so anyway in my situation if bitcoin completely goes beanie baby...I could probably get it all back ..i think you can take 3k off gross income a year on a
failed biz (not sure what i heard) thus hey 15 years get your equip investment back lol

but again this is me being stuck and what i'm doing to overcome as a legal miner....so far have not got slammed....

if you feel this has been helpful feel free to tip me a satoshi or two (just so i can keep score) or not

14LZGNSwg274baePA7AUBreUAxtRKx3KhK

also as a side note I found 'supposedly' you CAN get commercial elec rates in your residence should you show 'non normal use' and i also have the biz card
which may help..it MAY NOT be worth it ..but when all my equip comes in they do a free audit (this is xcel formerly nsp) and hey if I can save 30-40 bucks
a month on elec and continue  to have the miners heat my house (winter in usa) so be it ...just another trick may work ...at 15c/kwh i need a all the tricks
i can get on heating the house/or cutting down the kwh price even if (my guess) it is only 3c/kwh all said and done

anyway my lot good luck to you