Bitcoin’s Dive Opens the Way to a Tax Loophole Every Participant Needs to Know

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Participants and strategists are watching Key technical marks for active cryptocurrencies“–Paul Ebeling

Bitcoin’s 14-Day RSI is nearing the oversold mark, currently at 32, indicating the coin will find support and bounce higher.

Bitcoin, Ethereum and Dogecoin prices are on their way back North after all 3 cryptocurrencies saw their values dive in May, but investors could wait awile before they recover the $590-B in value the global crypto market shed between 12-17 May.

If you are a crypto investor there is a strategy you can use that might take some of the sting out of your recent losses. It’s called a “wash sale,” and it could help mitigate your losses by creating some nice tax savings, it could even be a reason to increase your stake in crypto now that prices are down.

Cryptocurrencies are not regulated as securities. The IRS taxes them as property. That means the rules that apply to stocks do not apply to crypto, and the rules around “wash sales” do not apply.

A wash sale takes place when you sell your stocks for a loss and then, within 30 days, you acquire more of the same securities, either through an outright purchase, a taxable trade or an option to buy.

If you scoop up more of the same stocks in that 30-day frame, the IRS will prohibit you from using the losses incurred on the sale to reduce the capital gains taxes generated by your more successful investments.

With crypto, there’s a lot more to be had.

Your losses can be used to draw down or completely wipe out your capital gains taxes. You can also buy more of the same crypto asset and try to capitalize on a swift rebound without having to wait 30 days.

Let’s say your Bitcoin investment lost you $50,000 a few wks ago, but the gains from your stocks and mutual funds this year earn you $50,000. Your Bitcoin losses would offset the taxes you would otherwise have to pay on your capital gains.

If you are going to use the wash sale rules to your advantage, just make sure you are not repurchasing too soon after making the sale. As, the IRS can still prevent you from claiming the tax credit if they think the sale lacks legitimacy. And do not plan on trying this with Coinbase (COIN) shares. They play by the same rules as every other stock.

Whenever you try out a new tax strategy, make sure you’re making an informed decision. Reach out to a reputable financial adviser so you can understand the short- and long-term benefits and risks of what you’re about to do.

Have a healthy day, Keep the Faith!