In our post last week, we showed how the risk of cryptocurrencies appears much higher than the risk of stocks and bonds. This week, we will discuss some of the taxes on cryptocurrencies, and how they differ from buying and selling an ETF.
Taxing gains and losses
When trading an ETF in a taxable account (e.g. not an IRA or Roth IRA account), trades are generally subject to taxes much like that of a stock. So, gains that are realized after holding for less than a year are taxable as ordinary income. However, to reduce taxes owed on these gains, an investor can offset them with realized losses on other ETFs. Termed tax-loss harvesting, such an approach can have significant economic benefits. But, what if the investor wishes to buy these ETFs they just sold because they anticipate it to appreciate again?
Wash Sale Rules
Selling, then rebuying, an ETF within 30 days violates the Wash Sale Rule. Consequently, such a violation means that the loss on the ETF investment can not be claimed for tax reasons, effectively eliminating the opportunity to tax-loss harvest. But, based on experts cited in this recent CNBC article, wash sale rules do not apply to taxes on cryptocurrencies. The article does caution that some caveats do apply. It suggests that selling a cryptocurrency one day and buying it again the next could still enable tax-loss harvesting. Given the recent wild swings in cryptocurrency prices, and recent gains in some ETFs, investors may wish to consider this tax-loss harvesting approach.
Free and Premium Portfolios Now Available
Lastly, this post is a reminder that the latest free and premium optimal portfolios are now available for your review. So, please log in and see how the latest market conditions have affected these ETF portfolios.
Note: This post has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. You should consult your own tax, legal and accounting advisors before engaging in any transaction.
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