Because the IRS classifies digital currencies like bitcoin as property, losses on crypto holdings are treated much differently than losses on stocks and mutual funds, according to Onramp Invest CEO Tyrone Ross. With crypto tokens, wash sale rules don’t apply, meaning that you can sell your bitcoin and buy it right back, whereas with a stock, you would have to wait 30 days to buy it back.
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The more losses you can rack up, the better it is for the investor in the long run.
“You can harvest an unlimited amount of losses and carry them forward into an unlimited number of tax years”.
Because the wash sale rule doesn’t apply, investors can harvest their crypto losses more aggressively than with stocks, because there’s no baked-in waiting period.
Quickly buying back the crypto is a key part of the equation. If timed correctly, buying the dip enables investors to catch the ride back up, if the price of the digital coin rebounds.
But be caution that thorough bookkeeping is essential.
Be warned, “Without detailed records of your transaction and cost basis, you cannot substantiate your calculations to the IRS”.
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