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December 1st, 2021 you buy $1000 worth of Coin1 with cash. It pumps 100x. Dec 31st, 2021 you’re up $99k, don’t sell but trade it all directly for Coin2. Jan 1st, 2022 Coin2 gets hacked and loses 99% of its value. April 18th, 2022 taxes are due for 2021. How much do you owe?

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@LukeDashjr@BitcoinHackers.org on Mastodon

@LukeDashjr

Apr 20

Even if all 3 events occurred the same week in 2021, you owe taxes on $99k This is how the IRS ended up with 100% of my bcash-bought bitcoins

Jesse Powell

@jespow

Apr 20

yes, but at least you could realize a $99k offsetting loss in the year by selling Coin2, eliminating the tax burden.

₿luefish

@bluefish_79

Apr 20

Taxing unrealized capital gains <> realized capital loss? 🤔

Replying to

and

You had realized gain of $99k when you traded Coin1 for Coin2. You can have a realized loss of $99k when you trade/sell Coin2 for anything else. Problem comes up when you can't take the loss deduction in the year you have the gain. So, you could end up with a bill you can't pay

8:14 AM · Apr 20, 2022Twitter Web App

Replying to

and

when you realise a gain you need to set aside funds with those gains to pay your tax due (unless you have other funds). In the UK you would have 1 year to file taxes for the year before. Also, speak to them and see if it can be deffered.

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@FL_steak_man

Apr 20

No, in the original example, coin2 crashed after your bought it. So selling coin2 gives you the realized loss immediately.

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