The high price fluctuations of cryptocurrencies are understandably causing headaches for investors who once bought Bitcoin or other cryptocurrencies at a high price. The good news, however, is that price losses can even be used to save tax in certain cases.
Tax loss harvesting: tax loss utilization
One tried and tested option is tax loss harvesting. This involves the targeted sale of assets that are making losses. The sale means that the losses are actually realized and therefore relevant for tax purposes, allowing them to be deducted from corresponding profits from the current year. If losses remain after this offsetting, investors have a choice and can either use the remaining loss amount in the next year or offset it against gains from the previous year.
Holding period and portfolio overview: Important factors for tax optimization
This results in interesting scope for structuring. In order to make use of it and reduce the tax burden, investors must keep an eye on the framework conditions: Above all, this includes the holding period of one year. Once this has expired, profits from trading in cryptocurrencies are tax-free. The flip side of the coin is that corresponding losses can no longer be deducted. Investors therefore need a good overview of their portfolio, ideally updated daily. Once the loss-making cryptocurrencies have been sold, they can be bought again immediately. This means that the holding period starts again, but the losses are immediately tax-effective. The Federal Fiscal Court does not consider this approach to be an abuse of tax planning.
Philipp Hornung
Manager, Tax
KPMG AG Wirtschaftsprüfungsgesellschaft
Restrictions on loss deduction: What investors need to know
However, one fly in the ointment remains. Crypto losses cannot be offset without limit. The loss deduction is limited to certain speculative objects. In addition to cryptocurrencies and foreign currencies, these include art and precious metals. Real estate is also included. They cannot be offset against gains from shares, funds and interest. Self-employed persons and freelancers who hold cryptocurrencies in their company have more extensive options. Losses are fully deductible for them. However, the tax authorities limit the timing of the loss deduction.
