Borrowed Money to buy Crypto and paid interest

[Echpoliatax]

Hello,

I, as an individual, borrowed money from other individuals and businesses. I took that money and bought cryptocurrencies. I actively traded crypto in 2021, I would sell the crypto, sometimes at a profit, sometimes at a loss. Then I would pay interest to those individuals and businesses.

1. Do I issue these individuals and businesses form 1099 INT, or something else?

2. In 2021 I paid $250,000 in interest payments. I sold $200,000 of crypto, and the other $50,000 I paid out of my pocket for the interest. I have a loss of $50,000. How do I report this loss on my tax return? Form 4952? 

3. For outstanding loans I still hold after 2021 ended, do I have to report these? If yes, on which form?

4. Where in Turbotax do I go to report my crypto transactions? I trade on Coinbase, but they did NOT issue me any tax forms. So I will manually input them?

Thank you for your time

[ColeenD3]

Let's take these questions one at a time.

1) No, you do not issue Form 1099-INT. You are not a financial institution.

2) The amount you paid in interest has nothing to do with your gain or loss on the crypto. See further instructions at the end of this post.*

3) No, you do not need to report outstanding loans.

4) You may receive various types of forms, including a 1099-K, 1099-B, and/or a gain and loss report.

It’s your responsibility to keep records of your transactions. The most common way to do this is to download your order or trading history from your exchange’s website. You may need to do this a few times throughout the year due to limits on how far back you can get information.

Once you have your figures:

1. Open or continue your return in TurboTax Online
2. Select Federal, and Wages & Income
3. Scroll down and select Show more next to Investment Income (or Investments and Savings)
4. Select Start or Revisit next to Stocks, Cryptocurrency, Mutual Funds, Bonds, Other (1099-B)
5. Follow the instructions and we'll calculate the gain or loss from the sale

There's an upload limit of 4,000 cryptocurrency transactions in TurboTax. If you have more than that, you’ll need a transaction aggregator. We’ll walk you through that in the cryptocurrency section.

*Interest expense

You may be able to deduct your interest on Form 4952.

Use this form to figure the amount of investment interest expense you can deduct for the current year and the amount you can carry forward to future years. Your investment interest expense deduction is limited to your net investment income.

Form 4952