Recording a capital gains loss due to margin trading cryptocurrency

[pbmunkey]

I had purchased some bitcoin (BTC) from coinbase.com and transferred it all to Derebit.com to buy perpetual contracts with. Basically leveraging it up to 100x. It works similar to stock trading with margins. Obviously, each move up or down is magnified when trading in this way. Depending on how much is leveraged, Derebit.com gives a price where, if BTC dips to, they will start to liquidate or sell all of one’s position. This happened to me. Let’s say I had 1 BTC that I bought for $10,000 and I leveraged that to buy $50,000 of BTC and my liquidation point is set at $8,000. BTC drops to $8,000, Derebit liquidates my 1 BTC and i’m left with nothing. How would I record this loss?

[Anonymous]

what about the shortfall of $32?    you paid for $10 borrowed $40 to get to $50 and then the total account was liquidated for $8  leaving $32 of the loan unpaid 

if this is what happened you have a loss of $42    ($50 - 😎

and forgiveness of debt income of $32                   ($40 - 😎  you should have gotten a 1099-c

the net is $10 which is the cash you put in.  

[pbmunkey]

no that's not what happened. It can never go negative. The liquidation point where they sell all of one's position will always leave one's portfolio at $0 when it happens

[fanfare]

you have a cost basis which is your invested amount (10,000).

You have an amount realized which is zero,

loss = your invested amount.

your max deduction is -$3,000 leaving -$7,000 to be carried forward.

[Anonymous]

but according to you, you only paid $10k for $50K in BTC.    if there was $50K of btc in your a/c and they liquidated  it they would have sold $50K   or maybe it was $8K for each $10K of BTC 

then sale $40K cost $50K loss $10K 

[sschultz1983]

What if you compound this situation by assuming you bought the BTC @ 10K it increased in value to 30K, at which point it was used in a margin trade, then was liquidated.  What would be the total loss?  10K or 30k?  If it is in fact 10K how do you account for the 20K?

[DianeW777]

The cost of your BTC doesn't change with any transaction.  The traded property received has the same basis of $10,000 because you did not add additional funds for the margin transaction.  An anticipated amount of income is not relevant, therefore since the $20,000 was never realized or included in taxable income, there is only your original cost basis to apply to the final liquidating transaction.

[fanfare]

Come back after you have examined the year end statement showing the cost, proceeds and dates of your transactions.   I understand some crypto firms will now give you a 1099-B report.