As with many assets, cryptocurrency and other digital assets had a terrible year in 2022. Some investors have begun using their deflated digital assets in order to offset capital gains from other assets, including stocks. The IRS does treat digital assets as property (per Notice 2014-21) and so this can work, but investing losses can only be used to offset other passive (investment) capital gains. These losses cannot offset ordinary income unless the investor styles themselves a digital asset trader, but this is unlikely to stand up to IRS scrutiny and audit. The fact is that digital assets are subject to the same rules as any other asset, and so tax loss harvesting from them looks mostly familiar.
Posted by Benjamin Sapozhnikov, Associate Editor, Wealth Strategies Journal.