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Where and how do I claim a cryptocurrency loss of principal and interest?

 
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Where and how do I claim a cryptocurrency loss of principal and interest?

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While this post is many months later than the original question, cryptocurrency taxation remains somewhat complicated and fluid.  The IRS website

 

https://www.irs.gov/businesses/small-businesses-self-employed/digital-assets

 

provides some guidance for what transactions have tax implications and where to report them.

 

However, your post suggests you make be referring to paper losses.  Those do not affect your tax return.  Only actual realized losses can be claimed as a capital loss on your virtual currency "property".  (One exception is if the asset becomes worthless and/or is cancelled through bankruptcy.)

 

There are a few situations which I did not find covered, though I may not have looked deeply enough.  For those I can only suggest what I would do, i.e. reporting them on current taxes:

 

(A) Some virtual currency funds make and sell a portion of your virtual currency to cover periodic investment fees.  These I, personally, would treat as short or long term capital gains or losses via Schedule D.  (The IRS presumes the default holding period to be that the redemption was from your oldest virtual currency holding.)  

 

(B) You also mention "interest".  If by that you mean additional virtual currency added periodically to your account to compensate you for use of your asset by the firm that holds it, then I would treat it like a mutual fund dividend and report its fair market value as such.  It would be an ordinary dividend, not a qualified dividend.  The fair market value of that dividend is then added to your original cost basis.

 

Caveat: As the IRS wants virtual currency treated as "property", both of the above could reasonably be argued as simple changes in the current value of the property and will only affect gains or losses when the property is eventually sold.  (Schedule D)

 

 

 

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