Capital Gains Tax for Cryptocurrency Drops to Zero in 2023

According to experts, you could qualify for a long-term capital gains tax rate of 0 if you have owned cryptocurrencies for more than 12 months. aforementioned by CNBC.

Individual taxpayers can earn more than $44,000 this year in taxable income and pay nothing in capital gains. Experts say this could be an opportunity to sell and buy back at the same time or harvest. crypto profits.

A savings opportunity

Some cryptocurrency investors will have a surprising savings opportunity this year after the cryptocurrency industry lost nearly $1.4 trillion in 2022. Many of them used tax losses to offset the gains. The market has started to recover this year and tax profit harvesting or strategic sales of profitable cryptocurrencies held in brokerage accounts have become an option.

The strategy works for investors who have held digital assets for more than a year. They have “built-in gains” as the price of Bitcoin had more than doubled on November 17 compared to the beginning of the year.

How does it work?

Investors subtract the sale price from the original price of the crypto to calculate profits. When they buy back the crypto, the original price is adjusted to the new sale price, known as an "incremental basis." The higher original or base price means a decrease in future profits if prices continue to rise and you sell the crypto again later.

Money can be made with tax-free opportunities, but the final decision depends on the investor's risk tolerance and goals.

Why it is smarter to reap profits

Harvesting tax gains is smarter than harvesting tax losses if you are in the 0% tax bracket, especially if you are buying back the asset immediately.

Tax-loss harvesting is popular because of the so-called wash selling loophole. If you buy the same type of asset a month after or before selling it, the IRS excludes a loss for other assets. However, this rule does not apply to cryptocurrency gains or losses. Tax loss harvesting grants future taxes, while tax gain strategy allows investors to sell at a profit without owing taxes.

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