Tax Loss Selling in Crypto - January Rally??

[Chase]

If you live in the U.S. or Canada (and possibly other countries?), where cryptocurrency is classified as an asset, you are eligible to claim any losses on the sale of cryptocurrency against any  taxable capital gains to reduce your income tax owing. 

In the U.S., if you don't have enough capital gains to offset the loss, you can also claim the loss against up to $3000 of regular income to reduce you tax burden.  In Canada, capital losses can only be deducted from capital gains, not regular income.  In both countries, if you re-buy the same asset within 30 days of sale, the loss is not allowed.

Since tax loss selling doesn't end until December 31, it may partially explain why the market can't get any traction lately.  There is probably a lot of educated investors that have been quietly taking advantage of this.  Many of them lost a lot of money on bitcoin as well as almost every other altcoin they may have invested in.

Will these tax loss sellers re-buy in January and February and spark a market rally?  I'm guessing (and hoping) yes, but I'm interested to hear what everyone else thinks.

January rally??

[Chase]

sounds like another elaborated excuse for the price being down, first most of the btc volume is from china fiat where taxes works very different than in the us.

No elaborate excuses (DNotes was very profitable this year for me) , just a little tax info that anyone can take advantage of.    So you don't think there will be enough re-buying in January to sway the market?

[ArticMine]

Tax loss selling will tend to impact an asset that is trading at a loss during the year the most. XBT being a very good example in 2014. The idea is to sell at a loss and claim it for tax purposes, then wait the prescribed 30 days and then buy back the asset hopefully at a lower same price or even slightly higher. With crypto-currencies, particularly alt-coins this can be a very dangerous game, if the market turns before the 30 days are over.

A better strategy can be. 1) Buy during the tax loss season. 2) Sell a portion during the buying panic / short squeeze resulting in a substantial profit. 3) Pay the required tax. 4) Keep the rest of the asset at an effective zero or negative cost.

[Chase]

Tax loss selling will tend to impact an asset that is trading at a loss during the year the most. XBT being a very good example in 2014. The idea is to sell at a loss and claim it for tax purposes, then wait the prescribed 30 days and then buy back the asset hopefully at a lower same price or even slightly higher. With crypto-currencies, particularly alt-coins this can be a very dangerous game, if the market turns before the 30 days are over.

A better strategy can be. 1) Buy during the tax loss season. 2) Sell a portion during the buying panic / short squeeze resulting in a substantial profit. 3) Pay the required tax. 4) Keep the rest of the asset at an effective zero or negative cost.

Good points.  I was also thinking someone could permanently sell one of the "going nowhere" coins that we all seem to have gotten stuck with, to declare the loss.  Even if the coin is no longer trading, you can still declare a total loss on it.  You could use the tax refund to re-buy something of better quality.

As far as bitcoin goes, if someone bought it at $1000 and it is now $325, they would have a $675 tax deduction per bitcoin (up to the maximum allowed loss) - that could be a substantial tax refund.  A lot of people leave tax loss selling to the end of the year, based on what they need to accomplish financially, which is why markets often rally a bit in January.  I guess you would really have to look at your own personal circumstances on this on.

 

[cassius69]

i think the slump is more due to people waking up and realizing they cant make money on pump and dumps when they dont control the coin.

[2dogs]

There are many reasons for an under-performance of a crypto, and too many threads elaborating this.

Selling for tax reasons is not a MAJOR factor in deciding when to sell, or at least it shouldn't be.

It might be a minor influence, however, but I doubt a rally will ensue in January.

[billotronic]

lol you are assuming crypto users pay taxes.

[2dogs]

lol you are assuming crypto users pay taxes.

Of course, all crypto traders and everyone on this forum abides by their local jurisdictions and pays their taxes, don't they??  LOL

My point is  -  buying for tax reasons, a house for example, isn't (or shouldn't be) a prime determining factor.

For most people, decisions on buying a house is usually predicated on location to job, family, or school or pride of ownership; then other secondary reasons, such as price (vs. renting), where tax issues are examined.

[ArticMine]

lol you are assuming crypto users pay taxes.

Of course, all crypto traders and everyone on this forum abides by their local jurisdictions and pays their taxes, don't they??  LOL

My point is  -  buying for tax reasons, a house for example, isn't (or shouldn't be) a prime determining factor.

For most people, decisions on buying a house is usually predicated on location to job, family, or school or pride of ownership; then other secondary reasons, such as price (vs. renting), where tax issues are examined.

Buying or selling for tax reasons is almost always a bad idea because one is entering the market with the primary objective of loosing money. More often than not investors that enter the market with the objective of loosing money actually achieve their objective and loose money! This does not mean there are many fools who believe then can outwit "lady tax" https://www.youtube.com/watch?v=_DoSQS8oUaQ and many pedallers of dubious investments that prey on them.
 
I do suspect tax selling has been a factor in the price of XBT at the end of this year and this has also impacted the price of many alt-coins.

[Chase]

lol you are assuming crypto users pay taxes.

Of course, all crypto traders and everyone on this forum abides by their local jurisdictions and pays their taxes, don't they??  LOL

My point is  -  buying for tax reasons, a house for example, isn't (or shouldn't be) a prime determining factor.

For most people, decisions on buying a house is usually predicated on location to job, family, or school or pride of ownership; then other secondary reasons, such as price (vs. renting), where tax issues are examined.

Buying or selling for tax reasons is almost always a bad idea because one is entering the market with the primary objective of loosing money. More often than not investors that enter the market with the objective of loosing money actually achieve their objective and loose money! This does not mean there are many fools who believe then can outwit "lady tax" https://www.youtube.com/watch?v=_DoSQS8oUaQ and many pedallers of dubious investments that prey on them.
 
I do suspect tax selling has been a factor in the price of XBT at the end of this year and this has also impacted the price of many alt-coins.

I'm not saying that anyone enters the crypto market for tax reasons or to lose money , but if you find yourself already holding a particular currency that has tanked (we all have a couple) and that includes bitcoin if you bought when it was high, you may be able to save a lot off your tax bill if you declare that loss.  Of course that is assuming you have a job or investment income outside of cryptocurrency that you have paid income tax on.  Somehow the wealthy have managed to do this in the stock market, as well as everything else "lady tax" allows, for generations and the only thing that has happened to them is... they got wealthier.

This is something you would take advantage of, only if it would result in a financial advantage for your particular circumstances.

p.s.  If you don't pay taxes, ignore this thread!