Crypto losses sting. But they don’t have to haunt your taxes. Let me walk you through this maze—it’s simpler than it looks. Imagine buying a shiny new bike for $500, only to sell it later for $300. That $200 difference? It’s a loss. The IRS sees crypto the same way. If you sell Bitcoin, Ethereum, or any other coin for less than what you paid, that’s a capital loss.
Losses aren’t just bad news—they’re tools. You can use them to cancel out your gains. Made money on some trades but lost on others? Subtract the losses from the gains. Less taxable income means less tax owed.
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Step 1: Keep Your Receipts (Seriously)
Write everything down—dates, amounts, prices. Bought Bitcoin on January 1 for $10,000 and sold it on June 1 for $6,000? Note it all. Think of this like keeping receipts for groceries—you need proof if anyone asks questions later.
Step 2: Do the Math
Subtract what you sold it for from what you bought it for. Bought Ethereum at $5,000 and sold it at $3,000? That’s a $2,000 loss. Easy math.
Step 3: Fill Out Form 8949
This is where the IRS gets nosy. They’ll want every detail—when you bought your crypto, when you sold it, how much you made or lost. It’s like filling out a report card for your trades. Short-term trades (held under a year) go in one section; long-term ones (over a year) go in another.
Step 4: Summarize on Schedule D
Think of Schedule D as the highlight reel. After listing all your trades on Form 8949, this is where you tally everything up—total gains and total losses.
Step 5: Offset Gains or Income
If your losses are bigger than your gains, you can use them to lower regular income taxes too—up to $3,000 per year ($1,500 if married filing separately). Got more than $3,000 in losses? Don’t worry—you can carry them forward to future years.
Taxes are messy; crypto taxes are messier. If this feels like trying to read ancient hieroglyphs, hire a tax pro. They’ll know the loopholes and rules better than anyone. Crypto losses aren’t just setbacks—they’re opportunities if handled right. Keep records tight, stay on top of forms, and don’t let confusion trip you up.