My answer is based on the assumption that $40,000 is the cost basis (basically, what you purchased it for) of the crypto rather than the Fair Market Value (FMV) of it in 2022.
Here is what you need to report on your 2024 tax return if the crypto was held for investment purposes:
1. Capital loss of $12,900. $27,100 received. The cost/basis - $40,000. If you held it for over a year, then it's a long-term loss. Otherwise, short-term.
2. Capital gain $16,000. Proceeds received - $42,000. Cost basis $26,000 (because when you sold your crypto, only the first distribution was received). This will be a short-term gain subject to ordinary income rates. The other $1,100 is your cost in the cryptos received. Use that amount to report a sale in the future.
3. As for the interest income, you would need to amend your 2022 tax return and remove the interest reported then. Another option is to report it as nonbusiness bad debt. If you lent your coins in exchange for interest, it could be considered a debt instrument. Thus, allowing you to claim the loss as a short-term loss on your 2024 tax return. Please note that the debt must be totally worthless before you can deduct it.
If the cost of the original investment was not $40,000, just plug in the correct number in the above calculations to get what you need to report.
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