Sell bitoin for tax gain harvesting

[moosa27]

This year I bought a home. In order to generate the cash for my downpayment, I had to sell some stock at a bad time, resulting in $20,000 capital loss.

I think if I had some other stock that was I could sell at a gain, I could offset the capital gains with the capital loss. But I do now have any stocks that are doing good right now. Instead, I have some BitCoin.

If I sell my BitCoin at a higher value than I bought it, does that count as capital gain? Can I offset $20,000 of that capital gain against my capital loss from stock this year?

i.e. can I sell some BitCoin at $20,000 higher than I originally bought, buy it back again, and not pay tax on the $20,000 of profit I made from BitCoin since I had $20,000 of loss from stock market this year?

[DavidT0202]

Hi @moosa27 

Selling Bitcoin or stock is the same when it comes to taxes.    If you sell bitcoin at a gain, you will be able to offset some of your capital losses.  This is limited: 

The IRS allows you to deduct up to $3,000 in capital losses from your ordinary income each year—or $1,500 if you're married filing separately. If you claim the $3,000 deduction, you will have $17,000 in excess loss to carry over into the following years and will pay taxes on $17,000 if the bitcoin sale. 

If you want your best outcome, only sell enough bitcoin to cover the maximum loss allowance. 

Thank you for choosing TurboTax!

[KochuK]

Hi moosa27, thanks for attending the event and posting questions.

According to IRS Notice 2014-21, the IRS considers cryptocurrency to be property, and capital gains and losses need to be reported on Schedule D and Form 8949 if necessary.

https://turbotax.intuit.com/tax-tips/investments-and-taxes/your-cryptocurrency-tax-guide/L4k3xiFjB 

Therefore, if you sell the Bitcoin for $20,000 loss, it can offset the stock capital gain (sold for the home down payment.)

As far as buying Bitcoin back, please refer to below TurboTax article:

What is the wash sale rule for cryptocurrency?

https://ttlc.intuit.com/turbotax-support/en-us/help-article/cryptocurrency/wash-sale-rule-cryptocurr... 

In 2022, Bitcoin is not subject to 30 days wash sale rule, i.e. you can buy back within 30 days.

Hope the above helps. Thank you.

[moosa27]

@DavidT0202

1- If my bitcoin sale counts as capital gain, why would it be subject to the $3000 cap? It doesn't count as ordinary income, right?

2- Another question, what happens if I sell my bitcoin next year, not this year? I claim $3000 off my ordinary income this year, and then the next year I can offset $17000 of my bitcoin capital gain based on my loss carryover from this year?