For some time, cryptocurrencies such as bitcoin were all the rage. People here in Massachusetts and elsewhere made a good deal of money on this new type of currency. For this reason, in 2014, the IRS announced these assets are to be taxed as capital gains when people make money from them.
In the last two years, the value of bitcoin, along with other cryptocurrencies, has declined. While this may not be good news for many people, it could provide those who have lost money in recent years with a silver lining. Since the IRS treats them as capital assets, any losses up to $3,000 can be claimed on income tax returns each year. The total loss may be spread out over several tax years.
Of course, certain criteria must be met before doing so. First, the bitcoin could be sold at a loss. In the alternative, it could be exchanged for another asset, which could range from a cup of coffee to a car. The difference in the value from when it was purchased versus when it was exchanged needs to be documented, however. For those who still have significant value in this or another cryptocurrency, it may be possible to offset at least some tax liability in other ways.
It is imperative that cryptocurrencies be handled properly when it comes to income taxes. As many people here in Massachusetts have experienced in the past, improperly handing capital assets could mean trouble with the IRS. In order to make sure that does not happen would probably require the advice and assistance of a tax attorney.