I sold some Bitcoin and Ethereum at a loss earlier this year and I'm not sure how to handle this on my tax return. Can I offset these losses against other gains, or do they just disappear? Also, does it matter if I traded between different exchanges throughout the year?
Crypto losses can offset capital gains dollar-for-dollar, which is huge if you had other investments that made money. If your losses exceed your gains, you can deduct up to $3,000 of net losses against ordinary income in a single year, with any remaining losses carrying forward to future years. So if you lost $5,000 total but made $2,000 elsewhere, you'd eliminate that gain and still have $3,000 to use against your regular income.
Which exchange you traded on doesn't matter for tax purposes - the IRS cares about your total transaction history, not where it happened. You'll need to report every single trade (buy/sell) as a separate transaction with its cost basis, sale price, and date, then calculate your gain or loss. A lot of folks use crypto tax software to aggregate their trades across exchanges automatically, which saves a ton of headache since manual tracking gets messy fast when you've got dozens of transactions.
Keep your records organized with purchase dates, amounts, and prices, plus sale information the same way. If you're filing yourself, you'll report this on Schedule D (capital gains/losses) on your 1040. Given how specific the rules are and how many transactions you're dealing with, it might be worth having someone review your calculations - these details matter when it comes to the IRS 🤔
The thing is, your losses don't just vanish - they're treated like any other capital loss, so you absolutely can use them to offset gains, and if you end up with more losses than gains, you can write off up to $3,000 against your regular income each year! The exchanges don't matter for tax purposes since the IRS cares about your total gains and losses combined, not where you traded.
You'll report these on Schedule D (Capital Gains and Losses), same as any other investment. The losses work exactly as the earlier answers covered - they offset gains dollar-for-dollar, and if you've got more losses than gains, you can deduct up to $3,000 against ordinary income, with anything beyond that carrying forward to future years. The key thing people sometimes miss is that you need to track your cost basis accurately for each trade, which brings me to your second question.
It doesn't matter which exchanges you used throughout the year - the IRS treats all your crypto transactions as one combined picture for tax purposes. What does matter is how you calculate your cost basis and which accounting method you choose (first in, first out, last in, first out, or specific identification). Most people default to FIFO unless they explicitly elect something else, so if you didn't specifically track individual lots, you're probably FIFO anyway. Some exchanges and crypto tax software can help pull your transaction history, but you're responsible for making sure it's correct. Just make sure every buy and sell is documented with the date, amount, and price, because if you're audited, you need to show your work on how you arrived at those loss figures.
Did you happen to buy back any of those same coins within 30 days of selling them? That matters because of wash-sale rules - if you did, the IRS won't let you claim the loss immediately, though you can add it to your cost basis on the replacement purchase instead. Beyond that, the earlier answers nailed the Schedule D reporting and the $3,000 annual deduction cap, but one thing worth double-checking: make sure you're calculating your gains and losses correctly across all exchanges you used. The IRS wants your total net position for the year, not per-exchange, so if you had $5,000 in losses on Kraken and $2,000 in gains on Coinbase, you're reporting a net $3,000 loss overall - not two separate transactions.
Keep detailed records of every single transaction - dates, amounts, prices at the time of sale - because the IRS will want to match your reported losses against exchange statements, and missing data makes audits way more likely. Most people lose track midway through the year and end up guessing, which is a mess.
The wash-sale rule mentioned already is real and it bites hard. If you sold Bitcoin at a loss and bought it back (or bought a "substantially identical" asset like Bitcoin Cash, though that gets fuzzy) within 30 days, you can't claim the loss right now - it gets deferred and added to your cost basis on the new position instead. Same applies if you buy before selling. This trips up a lot of traders who chop in and out constantly.
One thing nobody said: if your total losses exceed $3,000, you don't lose the rest. Carry-forward losses can offset future gains year after year, so document them separately and keep that info forever. Report everything on Schedule D like the others mentioned, but organize it clearly - exchange doesn't matter for reporting purposes, only the actual transaction dates and amounts matter. The IRS doesn't care if you hopped between five platforms; what matters is you've got proof of when you bought and sold.
Log into answer.
