Collectively, U.S. investors who sold their bitcoin incurred losses of approximately $1.7 billion, according to a new report from Credit Karma. Those who haven’t sold yet, have accumulated approximately $5.7 billion worth of unrealized losses.
Surprisingly, many investors don’t realize that selling bitcoin could be a taxable event. Credit Karma’s survey shows only 53 percent of American bitcoin investors plan to report their bitcoin gains or losses on their taxes. Even more, 35 percent of investors who sold at a loss said they won't be claiming deductions.
While many people are aware of the repercussions of not reporting tax gains, Credit Karma GM Jagjit Chawla believes many Americans don’t know they can qualify for a crypto tax reduction as a result of their losses.
“Even though those who sold their bitcoin at a loss can typically claim a tax deduction we found that before taking our survey, 61% of respondents who lost money on bitcoin didn’t actually realize they could get a tax deduction for bitcoin losses.”
Under the current tax laws, U.S. citizens can claim up to $3,000 in crypto losses. Anything over that amount can be carried over to the next years’ tax returns to offset potential gains tax.
Why aren’t investors reporting their crypto gains or losses?
The average loss per investor comes out to about $718. Clearly, investors could benefit greatly from claiming capital loss tax deductions. So, why aren’t they reporting bitcoin losses? The survey found that the main reason was the confusion around them needing to. 55 percent of participants said they didn’t think they had to report their gains or losses because they were so small and 35 percent didn’t believe they were required to at all. Not to mention, 22 percent said that they didn’t how to report their bitcoin taxes.
The confusion surrounding crypto taxation isn’t a new issue. At the end of 2017, most popular crypto exchanges weren't providing cost basis tax reporting and new crypto investors were left searching for direction on how to process their crypto taxes. The guidelines produced in 2014 state that for federal tax purposes, virtual currency should be treated as property.
"If the fair market value of property received in exchange for virtual currency exceeds the taxpayer’s adjusted basis of the virtual currency, the taxpayer has a taxable gain. The taxpayer has a loss if the fair market value of the property received is less than the adjusted basis of the virtual currency."
Credit Karma's survey also found that the more people became aware of the regulations, the more likely they were to report bitcoin on their taxes. There are also many companies working to bring added clarity to investors and a turn-key tax basis accounting system to institutions.