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Yes. For U.S. federal income tax purposes, a realized loss on cryptocurrency held as a capital asset generally offsets capital gains under the usual capital-loss rules. A price decline alone does not count: you generally need to sell or otherwise dispose of the asset. If your total capital losses exceed your gains, you can generally deduct up to $3,000 of the excess against other income ($1,500 if married filing separately), with unused losses generally carried forward.
When does a cryptocurrency loss count?
The IRS treats digital assets as property for federal income tax purposes, so general property transaction rules apply. The IRS describes digital assets as property in its digital-asset FAQ.
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A price drop is not a realized loss
If you still hold cryptocurrency that has fallen in value, you generally have not realized a capital loss. A sale or another disposition is generally needed to recognize a loss. Do not assume that every event involving an asset has the same tax result as selling it; the result depends on the transaction.
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For a disposition, gain or loss is generally the difference between the amount realized and your adjusted basis. The IRS calls for reporting amounts in U.S. dollars and accounting for transaction costs under the applicable rules. Keep records supporting both basis and proceeds, including relevant transaction fees; see the IRS digital-asset FAQ and digital assets filing guidance.
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How are crypto gains and losses combined?
Capital losses are netted against capital gains. If your losses exceed your gains, the general individual limit for deducting the remaining net loss against other income is $3,000, or $1,500 if you are married filing separately. That limit applies to the excess after offsetting capital gains; it is not a cap on the amount of capital losses that can offset capital gains. Unused capital losses generally carry forward. The IRS explains the rules in Topic no. 409, Capital gains and losses.
Does short-term or long-term status matter?
Yes. The holding period affects whether a capital gain or loss is short-term or long-term. Under the IRS FAQ, an asset held as a capital asset for one year or less before sale or exchange generally produces a short-term result; more than one year generally produces a long-term result. The holding period starts the day after acquisition and ends on the date of disposition. See the IRS digital-asset FAQ.
How do you report cryptocurrency capital losses?
Individuals generally report sales, exchanges, and other dispositions of digital assets held as capital assets on Form 8949, then summarize capital gains and deductible losses on Schedule D (Form 1040). The IRS says digital-asset transactions must be reported whether or not they produce taxable gain or loss. Broker-provided information and the transaction type can affect reporting details. Consult the instructions for the relevant tax year and the IRS digital assets filing guidance.
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Records to keep
- Acquisition and disposition dates and times.
- Units of the digital asset involved.
- Fair market values in U.S. dollars.
- Adjusted basis and records supporting it.
- Sale or exchange proceeds and relevant transaction costs.
- Records of purchases, receipts, sales, exchanges, and other dispositions.
The IRS’s filing guidance identifies these records and calculation inputs as relevant to reporting.
Which IRS guidance applies to the tax year?
The IRS FAQ distinguishes transactions completed before January 1, 2025, generally covered by Part I, from digital-asset transactions on or after that date, generally addressed by Part II. Check the part and forms instructions that apply to the tax year you are filing; the IRS’s FAQ and filing guidance provide the current framework.
What about wash-sale rules?
Do not assume cryptocurrency losses are categorically exempt from wash-sale restrictions. The result may depend on the asset, transaction structure, and tax year, and the IRS materials cited here do not establish a universal rule for every digital-asset arrangement. Check current authority for your specific transaction or consult a qualified tax professional.
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Common questions, answered
Can an unsold crypto loss reduce my taxes?
Generally not merely because the asset’s market price fell. A sale or other disposition is generally needed for a capital loss to be recognized.
Is the $3,000 limit how much loss can offset gains?
No. Capital losses generally offset capital gains first. The $3,000 limit (or $1,500 for married filing separately) generally applies to net capital losses exceeding capital gains that an individual deducts against other income.
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