Here’s How Crypto Traders are Converting Worthless NFTs into Tax Breaks

Cryptocurrency traders are turning worthless NFTs into tax breaks. They are using a service started just for that purpose. Others are taking advantage of IRS tax loopholes to get tax breaks on their BTC, ETH and other losses this year.

This is how bad crypto winter is getting as the frost settles in the northern hemisphere of planet earth. But in a sign of persistence and entrepreneurial spirit, the crypto markets are reacting. NFT buyers are now helping people with their underwater smart contracts. They are helping sellers get rid of their junk NFT and get an official receipt for their tax breaks.

Investors are taking losses on NFTs for tax breaks

It's not unlike what happened after the 2008 financial crisis. Back then, billions of dollars in mortgage-backed fixed income securities (MBS) had turned toxic. They were dumped for the big tax breaks. Banks and financial institutions that became entangled in those then innovative derivatives markets withdrew.

However, it is also totally different from what happened after the 2008 crisis. Because it was the government and the central bank that bought most of those toxic assets. It was like a big institutional bailout for the banks that suffered losses in the housing and credit bubble of that decade.

Cryptocurrency creativity keeps the wheels turning

Instead, with NFTs saddled with losses, the free market and entrepreneurship are prevailing again. NFT buyers have emerged to solve a problem created by the free market and entrepreneurship. It is in keeping with the spirit of the cryptocurrency sector and the freedom of the free and open Internet Web3. Plus, there are tax breaks, so it's also federally compliant.

The Guardian reported on thursday:

Now, along with the broader crypto market, the appetite for NFTs has waned so much that a niche market has emerged for collectors looking to sell their once-valuable "digital collectibles" as tax losses to offset their cryptocurrency tax bills. the rent.

Dumping their unsellable NFTs is not the only way crypto investors are getting tax breaks from the brutal losses of this crypto winter. They are also selling their unrealized losses and buying back to take a loss for tax purposes while holding their long positions for a future rally.

How Cryptocurrency Traders Get Other Tax Breaks

The tax loophole is that cryptocurrencies are considered property, not a security, so 30-day stocks washing rules not apply to them. That means that if you hold a losing position, you can sell your position and buy back to keep your losses against any gains to lower your tax liability on cryptocurrency investments.

Microstrategy took advantage of the tax breaks from this loophole in the fourth quarter of 2022, according to a recent filing. The company run by Michael Saylor accumulated $42.8 million plus BTC from the beginning of November until almost the end of December. But also sold some $12 million during that period for tax purposes.