You cannot claim a loss from this decrease on your tax return until there is a closed and completed transaction, such as a sale or exchange. If your digital asset investment account is frozen or your digital assets are tied up in bankruptcy proceedings, you can’t claim a taxable loss because you don’t have a closed and completed transaction.
Once your account has been unfrozen or the bankruptcy proceedings completed, you will have to reassess your situation. If your digital assets and your ownership of them have remained intact, and they have any value, then you don’t have a recognizable loss. If you received a settlement (regardless how small) from the bankruptcy proceedings in exchange for your digital assets, this is considered a sale and you (or let TurboTax do it for you) should calculate your capital loss (or gain) on Form 8949 and report it on Schedule D (Form 1040) for the year you received the settlement.
If you still have tokens or shares outstanding, that might have some dollar value in a bankruptcy proceeding, you have to wait until the bankruptcy proceeding is completed. Then, you can report the final disposal of your tokens or shares using the price you originally paid as the purchase price (basis), and the final payment from the bankruptcy as the selling price (proceeds). If you receive less than you originally invested, that is a capital loss.
Where do I enter my capital gains and losses? Follow the instructions in this link to report your gains/losses. TurboTax will prepare the Schedule D and/or Form 8949 when you enter the dates and amounts (proceeds and basis) in the Investments Income section.
All cryptocurrency sales are taxable transactions that have to be reported on your tax return. Unlike stocks and bonds, cryptocurrency exchanges are not required to provide a Form 1099-B or summary tax statement for cryptocurrency transactions. You may need to go to your exchange’s website and download your order or trading history. A discharge order or final decree will be useful in the case of bankruptcy pay outs.
Cryptocurrency Guide
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