Many in the crypto space are familiar with the term Tax Loss Harvesting. Tax Loss Harvesting is a common strategy used by stock and crypto investors alike to reduce one’s capital gains by purposefully selling or “harvesting” an asset at a low price.
This can reduce an investors’ overall tax burden by reducing their capital gains.
Each year, CoinLedger offers a Tax Loss Harvesting report which shows our users potential loss harvesting opportunities in their portfolios. For a more in-depth explanation of what Tax Loss Harvesting is, please visit this blog.
How does the Tax Loss Harvesting report work?
CoinLedger generates a Tax Loss Harvesting report suggesting potential harvesting opportunities in your portfolio. It's important to note that this report is only available for current-year portfolios, meaning you will only see a Tax Loss Harvesting Report on your account if you're looking at the same report as the calendar year you're currently in.
For example, 2022 Tax Loss Harvesting Reports are only available to be viewed in 2022, and will not be viewable the year after, likewise with 2023, and so on. This is because you can only "harvest" losses for the 2022 tax year in 2022, and not the next year.
If your account doesn't have a Tax Loss Harvesting Report available, this is probably because you're looking at a past year. Please ensure you're looking at their current calendar year's reports page.
Where can I find my Tax Loss Harvesting report?
Your Tax Loss Harvesting report can be found on Step 4, Tax Reports through the process shown below.
From the CoinLedger app, select Step 4, Tax Reports.
Navigate to the Summary at the bottom of the page, and select Tax Loss Harvesting to view your suggested harvests.
Now, you can view your Tax Loss Harvesting opportunities, as well as the projected impact of these losses, in the Unrealized Losses column.
Unrealized Losses represent the projected capital losses you could write off on your taxes if you sold the assets suggested in the Current Holdings column.
To initiate these sales, head to the crypto app or exchange where you hold these assets, and sell the amount you'd like to harvest. Then, re-sync your accounts with CoinLedger, and these losses should be reflected in your capital gains summary on the Reports page.
What is the wash sale rule, and does it apply to crypto? The wash sale rule is a regulation on trading stocks that prevents traders from selling a position and then immediately buying back in at a lower price. According to this rule, an investor is unable to “claim” a capital loss on a stock if you buy back the same security 30 days before or after the sale. Since the IRS specifically states that wash sale rules only apply to securities (and crypto is defined as property), this means that as of now, wash sales rules do not apply to cryptocurrencies—however, this could change in the future.
Why don't I have any suggested loss harvesting opportunities? This is probably because the assets you're holding in your portfolio have already been harvested for losses. It could also be because the cost basis of your assets is less than the fair market value (or current market price) of those coins, which would mean by selling or trading them away, you would actually be profiting instead of taking losses.
I don't have the option to view a Tax Loss Harvesting report on my account. This is likely because you're looking at a past year and not the current calendar year's tax report. Tax Loss Harvesting suggestions are only available for current year reports, and cannot be viewed after that year has passed.
My tax harvest suggestions don't seem correct. If your harvesting suggestions don't seem correct, we first recommend ensuring that you've imported all of your crypto trades and transactions from every exchange you use, for all years of your trading. We also recommend changing your accounting method (also known as FIFO, HIFO, or LIFO) according to the steps in this guide to see if the calculations look any different. If the issue still persists, feel free to reach out to our Support Team for further guidance.