Tax advice on reporting cyprto gains when I lost crypto in the Celsius Network bankruptcy

[BreezyBlizzard]

I need tax advice on how to report my crypto gains.

I had crypto in Celsius Network when it halted withdrawals and declared bankruptcy in 2022 and I was not able to take out my crypto that was equivalent to roughly $40,000 at the time.

In 2024, the payments were finally paid out to Celsius customers in bitcoin and Ethereum in two distributions. One in February and one in December.

However, the two distributions, combined, were only to the equivalent of about $27,000 at the time the distributions were sent to me ($26,000 in the first distribution in February 2024 and $1100 in the second distribution in December 2024). So a loss of around $13,000.

However, I never traded my crypto that I received back into cash until November 2024. So I was able to cash out $42000 off of the amount I received in my first distribution, a gain of $16,000 off of my first distribution amount.

So would I put my total crypto gains as $3600 for 2024 after factoring in the loss of $13,000 in the Celsius bankruptcy case? Or would I calculate my loss as being $14,000 (so a total crypto gain of $2500) since that's the difference based off just the first distribution amount I received, and the only amount that I recorded gains on since the second distribution amount didn't come in until after I had cashed out my crypto gains.

I still have not cashed out my bitcoin I received in my second distribution in December 2024 by the way.

Do I need to submit any special forms due to losses procured due to another company going bankrupt and losing my money?
I've never had to pay taxes on crypto gains before and I feel like my situation is unique to the norm so I don't really have any clue how to navigate paying my taxes on this.

Also, in 2022, I remember having to pay tax on interest earned on my Celsius account since I was earning around 5% on my crypto while it was in there. However, I was never able to access this supposed interest earned and as it turned out, I ended up losing over $13000 of what I had in there. So is there any way to also factor that amount I had to pay for taxes in 2022 for this year's taxes on my crypto gains?

[KristinaK]

My answer is based on the assumption that $40,000 is the cost basis (basically, what you purchased it for) of the crypto rather than the Fair Market Value (FMV) of it in 2022. 

Here is what you need to report on your 2024 tax return if the crypto was held for investment purposes:

1. Capital loss of $12,900. $27,100 received. The cost/basis -  $40,000. If you held it for over a year, then it's a long-term loss. Otherwise, short-term. 

2. Capital gain $16,000. Proceeds received - $42,000. Cost basis $26,000 (because when you sold your crypto, only the first distribution was received). This will be a short-term gain subject to ordinary income rates. The other $1,100 is your cost in the cryptos received. Use that amount to report a sale in the future. 

3. As for the interest income, you would need to amend your 2022 tax return and remove the interest reported then. Another option is to report it as nonbusiness bad debt. If you lent your coins in exchange for interest, it could be considered a debt instrument. Thus, allowing you to claim the loss as a short-term loss on your 2024 tax return. Please note that the debt must be totally worthless before you can deduct it. 


If the cost of the original investment was not $40,000, just plug in the correct number in the above calculations to get what you need to report.