Margin Trading of Cryptocurrency

[sschultz1983]

What if a Crypto was bought for $1000, it increased in value to $2000, then was used in a margin trade and liquidated.  What would be the loss claimed?  If it is in fact only $1000 how do you account for the additional $1000?  I understand that the cost basis is $1000 but at the time of liquidation the account would have lost $2000?  

[Mike9241]

you have not provided complete details  - basically, you had two buys and two sells. the buy and liquidation of the crypto and the buy and liquidation of whatever you bought on margin.

[sschultz1983]

So crypto was bought at $1000, increased in value to $2000, at which point it was used in say a 5X margin trade.  So $10000 of another crypto was bought,  price dropped and the account was liquidated, leaving the holder without the original crypto.  What is the loss, $1000 or $2000? Not concerned about the number of transaction just the actual liquidation. 

[Rick19744]

So we are getting closer, but still not there yet with all the facts needed:

• You purchase $1,000 in crypto A and the price increased to $2,000.
• You indicate that you then purchased $10,000 in crypto B (accomplished through a margin loan).
• You then state that the price dropped and the account was liquidated.
• What was the price of crypto A when it was sold?
• What was the price of crypto B when it was sold?
• It appears that you may have some margin interest expense and this expense may be deductible as long as you have investment income.  This will be computed on form 4952.  This will only benefit you if you itemize your deductions, but will be "lost" " if you take the standard deduction.
• In conclusion, you have 3 separate transactions that will need to be addressed.

[fanfare]

Come back after you have examined the trade statement showing the cost, proceeds and dates of your transactions.

I understand some crypto firms will now give you a 1099-B report.