To contact him directly with additional questions, click this link Chris Whalen, CPA
I did some trading in the first quarter of 2021 and did not touch my crypto after that in 2021. I did not take any profit. It seemed like I made a lot of money in December 2021. However, I am down 60% with my crypto portfolio now in 2022. Would I need to report this as a loss or profit for 2021? How do I report this?
Your statement, “I did not take any profit,” is a very common thought, but it usually leads people to not report properly. If you did trade crypto for crypto, then you did have a reportable gain or loss, just not a gain or loss converted to fiat currency. In 2021, if you gave up title to cryptocurrency in any way, exchanged for another cryptocurrency or fiat currency, you did have a reportable taxable transaction that must be reported on your 2021 form 1040. It does not have to be converted to fiat currency. You need to report the net gain or loss. That is calculated as the FMV in US Dollars of cryptocurrency you received (proceeds), less the (basis) in US Dollars of the cryptocurrency you gave up.
- 12/31/2019 Bought 1 Bitcoin with fiat currency for $7,200 (basis)
- 4/1/2021 Exchanged 1 Bitcoin for $58,000 of Ethereum (proceeds)
- No cash has changed hands.
- You have the following long-term gain to reflect on your 2021 form 1040.
- Gain (proceeds – basis)
- $50,800 ($58,000 – $7,200).
Your statement, “However, I am down 60% with my crypto portfolio now in 2022. Would I need to report this as a loss or profit for 2021? How do I report this?”
While you are holding cryptocurrency, any increase or decrease in fair market value does NOT have any tax consequence. Unless you exchange that cryptocurrency for another or for fiat currency, you would have no 2022 crypto-related taxable events.