# How do crypto losses affect my taxes in the US?

Jessica Washington · August 4, 2026

> Capital Gains and Losses: In the US, gains and losses from cryptocurrency transactions are classified as capital gains and losses. This classification...

Capital Gains and Losses: In the US, gains and losses from cryptocurrency transactions are classified as capital gains and losses.

This classification depends on whether the asset was held for less than a year (short-term) or more than a year (long-term).

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Tax Forms: Taxpayers are required to report their crypto transactions using Form 8949 and Schedule D.

Form 8949 is used to list individual transactions where gains or losses occurred, while Schedule D summarizes them.

Calculating Losses: To determine your loss, subtract the sale price of the cryptocurrency from its purchase price (basis).

If the result is negative, you have a capital loss which can be reported on your tax return.

Offsetting Gains: You can use capital losses from cryptocurrency to offset capital gains.

For instance, if you made $5,000 in gains but lost $3,000 on crypto sales, you only pay taxes on the net gain of $2,000.

Deduction Limits: If your capital losses exceed your capital gains, you can deduct up to $3,000 from your ordinary income in a single tax year.

Losses exceeding this limit can be carried over to future years.

Carryforward Provision: Unused capital losses can be carried forward to future tax years indefinitely, allowing you to apply them against taxable gains in subsequent years.

IRS Digital Asset Question: Since 2022, taxpayers have been required to answer a specific question on their federal tax return regarding digital assets, ensuring that all income related to crypto trading is reported.

No Deduction Without Sale: According to IRS guidance, you cannot claim a deduction for losses from cryptocurrency that has declined in value unless there has been a sale or other taxable event.

Holding an asset that loses value doesn’t qualify as a deductible loss.

Inadequacy of Market Value Decline: The IRS does not recognize unrealized losses (losses on assets that haven't been sold) as deductible.

You must actualize losses through a sale or exchange.

Treatment of Hard Forks: If you receive new tokens from a hard fork, the IRS considers this income.

Despite the original coins dropping in value, the newly received tokens can be taxable even if you sell at a loss later.

If you use cryptocurrency for personal transactions, deductions may not apply as they would for investment purposes.

Non-Transactional Crypto Accounts: Holding cryptocurrency in a non-transactional account (i.e., not trading or selling) does not trigger any taxable events.

It’s essential to recognize that true financial transactions are required for taxable losses or gains to be realized.

Trading Fees and Basis Adjustments: Bitcoin and other crypto assets often incur transaction fees which can be added to your basis.

This adjustment can potentially result in a lower taxable gain when sold.

Acknowledging Different Types of Income: Income earned from both mining and staking cryptocurrencies can also impact your tax situation.

This earned income is treated differently from capital gains.

State-Level Tax Changes: States may have different tax implications for crypto losses.

While federal tax laws remain consistent, states like California or New York may impose additional taxes or different processes.

Impact of the Tax Cuts and Jobs Act: The Tax Cuts and Jobs Act of 2017 limited some deductions and restructured individual tax brackets, impacting how losses can offset income, including gains related to cryptocurrency.

Record Keeping: It is vital to maintain detailed records of all cryptocurrency purchases, transactions, and relevant dates to accurately report gains and losses during tax season.

Volatile Market Consideration: The volatile nature of cryptocurrency can lead to significant fluctuations in value, resulting in challenging tax situations where timely reporting and accurate calculations are crucial.

Audit Risk: Taxpayers dealing in cryptocurrency may face a higher audit risk due to the complexities associated with reporting digital transactions.

Ensuring compliance and accurate record-keeping is essential.

Recent Regulatory Changes: Ongoing developments in the regulatory environment, including potential new tax laws affecting cryptocurrency, underscore the importance of staying updated on changes that could impact your filing and reporting obligations in future tax years

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