If I pay someone back by sending BTC from my wallet to theirs, and the BTC is worth less than when I bought it, can I claim a capital loss even though I never sold BTC?

Forum|Forum|3 years ago
July 29, 2022
2 replies
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To my understanding, sending crypto is not a taxable event, and the cost basis of the receiving person is the price when I send. I am worried that the capital loss I incurred would just disappear.

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stvnguanAuthor

Thanks for the reply, very helpful! If it was the other way around and I made gains on my BTC, I would have to pay capital gains tax right?

NCPERSON1

can we go back on this one?

@stvnguan why did you send BTC to someone else? were you buying a good or service? if yes, then you bought the good or service and sold the BTC to complete the exchange. You must report the sale of the BTC as a taxable event, using your cost basis in the BTC to determine the gain / loss

@Critter-3 - I do not believe the Euro example works. This is the whole issue with crypto is my understanding. Crypto is considered an asset and NOT a currency by the IRS. So each trade of the crypto is a taxable event. When exchanging crypto for a good or service, that sale of the crypto is a taxable and reportable event as you have disposed of an asset (the crypto).

if you buy a slice of pizza with crypto, you've exchanged the cypto to buy the pizza and have to report the sale of your asset. That is very different than flying to Paris and exchanging dollars for Euros and buying the same slice of pizza - because of the IRS view of assets (e.g. crypto) versus currency (e.g. euros). This is what makes crypto so difficult to use - each transaction is reportable to the IRS.

here is one article:

https://time.com/nextadvisor/investing/cryptocurrency/cryptocurrency-tax-guide/#:~:text=The%20IRS%20considers%20cryptocurrency%20holdings,request%20an%20extension%20to%20file.

thoughts?

Opus 17

Employee

If you hold cryptocurrency for investment purposes, your gains are taxable and your losses are probably deductible, although this is a bit of a gray area.

If you are using cryptocurrency as money, you must report any gains when the cryptocurrency is converted to what the IRS considers "real" money or goods or services, but you can't deduct your losses.

Suppose someone pays you $50 in BTC for something you sold on Facebook marketplace, in February 2022, when BTC was $42,000. You actually received 0.00119 BTC. In July 2022 you buy a pizza for $10 of BTC, at today's price that's 0.000419 BTC. From the February price, that's a $7 loss. That's non-deductible. It's just gone.

On the other hand, suppose someone pays you $50 in BTC for something you sold on Facebook marketplace, in October 2020, when BTC was $10,000, that's .005 BTC. When you buy the pizza, it costs you .000419 BTC which has a present value of $10 but a cost of $4.19, which is a $5.81 taxable gain for you.

If you track cryptocurrency the way the IRS says, you have to report lots of transactions and pay income tax on every transaction with a gain, and you can't deduct transactions with a loss.