How to use cryptocurrency losses for tax purposes? Bitcoin lost half of its value, Ether too, and Terra Luna completely collapsed. 2022 is not a good year for friends of cultivated crypto investments. Nothing will help at this point. Or will it? Under certain circumstances, you can use your losses for tax purposes and offset them against gains from the previous year (only for Germany) or the following years (for Germany and Spain). Blockpit shows how it works.
- In 2021, you made gains you now have to pay taxes for.
- In 2022, you sold digital assets at a loss and you owned them for less than a year
- By realizing your cryptocurrency losses now, you can deduct this year’s losses from the previous year’s gains.
- This way, you can effectively reduce your crypto tax bill.
- You can offset losses with gains from the same tax year.
- Since the 2022 tax reform, you can offset crypto losses with stock (and other capital market) profits.
- You can offset losses with gains from the same tax year.
- If losses exceed the amount of gains in the same year, you can finish offsetting them in the following four tax years.
- You can offset losses of each investment product with other products in the same category.
- If the amount of your capital losses exceeds the amount of your capital gains, you can continue to offset them with a maximum of 25% of your gains from movable capital.
And now the whole thing in detail.
Crypto tax, what’s that?
Yes, if you make gains with crypto assets (often called cryptocurrencies, even though they are not), you have to declare them on your annual tax return and pay them to the tax office of your choice. We have written a crypto tax guide for Germany that is worth reading and goes more into detail.
In a nutshell: The tax office separates whether you trade with cryptos professionally and for commercial purposes or whether it’s a private matter. In the second case, there are two goodies: If you live in Germany and own assets for more than a year, you don’t have to pay taxes on the gains after the sale. Additionally, there is a tax-free allowance of €600 in Germany. If you made less profit: no tax.
Almost all assets – Bitcoin, Altcoins, Memecoins, Shitcoins, DeFi, Mining, Staking, NFT – are taxable. But more about that in the Guide.
Private traders have to pay income tax on gains made with crypto-coins. The amount depends on your personal tax rate.
Tax your 2021 crypto profits
May and June are crypto tax season. Tax returns must be handed in by the end of June (end of October for 2021 returns in Germany). Blockpit’s Cryptotax App is the easiest way to calculate the exact taxation for all trades automatically. If you made gains in 2021, like many other traders, the app shows you which positions are taxable, how much your earnings are and gives you a finished tax document. In Germany, the profit is your new base from which you can deduct the losses from this year.
Define your 2022 cryptocurrency losses
There are some important conditions to offset losses.
- In Germany as well as in Austria and Spain, the loss had to be realized. Whether Bitcoin, Shiba Inu, or Bored Apes NFTs, your tokens must have been sold at a loss. Let’s look at Terra Luna, whose tokens are still tradable in mid-May 2022 but are worth almost nothing. The project is down, and it’s not clear if it (and therefore the coins) will rise again. To offset losses, you’ll have to sell your Luna, even if they’re worth so little that you might as well keep them in the hope that the value will rise again.
- In Germany and Austria, for a loss to become relevant for tax, it must be realized within the one-year speculation period. This background shows that private sales-transactions with cryptocurrencies are tax-free after one year. In other words, if cryptocurrencies are held for more than a year, potential gains are not taxable and thus do not lead to a tax-liability for the seller. However, the same applies to losses, which means that the legislator only allows a loss account if the sale took place within the one-year speculation period. In individual cases, it can be beneficial to realize losses within the one-year period to offset past or future capital gains. There are some things to consider for this, as we explain elsewhere.
Calculate the loss compensation
This formula calculates the gain or loss from crypto-asset trading:
Sales price – acquisition costs – advertising costs = disposal result.
Exchange of Ether for Euro
Sales price: 5,000 EUR
Acquisition costs: 7,000 EUR
Advertising costs: 15 EUR
Calculation: 5,000 EUR-7,000 EUR-15 EUR= -2,015 EUR
In this example, a loss of 2,015 EUR was realized. If the Blockpit App (or your Excel spreadsheet with all your trades) calculated a gain of 10,000 EUR for 2021, you could deduct the loss, and you are left with a total profit of 7,085 EUR
What can not be offset
In Germany, according to § 23 EStG, you can only offset equal losses against one another. In other words, crypto losses with crypto gains. Unfortunately, it is impossible to offset income from self-employment, capital assets, or renting with crypto losses.
Roll forwards and backwards
So far, we’ve offset losses with crypto assets from this year with gains from the previous year. But you can also turn the whole thing around. You can offset losses from this year with profits you might generate next year. This can be useful if the offsetting with the previous year is not useful to you. In Spain, you offset losses with profits of the same tax year. But if the result is still negative, you can continue to offset them over the next four tax years.
Gain 2021: 350 Euro
Loss 2022 with Terra Luna: -2,000 Euro
You have a gain exemption limit of 600 euros per year. So, you do not have to pay taxes for 2021. According to this, it is useless to offset the loss with Terra in this year.
You have two options: you can offset the loss if you make a profit in 2022. But if this year looks bad, you can hope for next year and then offset the gains with the losses of your Terra trade.
One last special feature
Let’s assume that you are selling your loss-cryptos – whether it is Luna, Solana, or NFTs – in September. But you already filed your 2021 tax return in June and paid the due tax. In this case, you can retrospectively reduce your 2021 tax return. The return will be adjusted, and you will receive a refund of the overpaid amount.
We hope that this information will help you reduce your potential cryptocurrency losses. For this, we warmly recommend our Cryptotax App, which will help you do these calculations easily.