How Crypto Taxation in the U.S. Compares With Other Countries’

Mohit Oberoi, CFA - Author
By

Feb. 8 2022, Published 8:40 a.m. ET

The 2022 tax filing season has started, and you can file your returns by Apr. 18. Cryptocurrencies were volatile in 2021, costing some investors. Are crypto losses tax deductible? Here's an explanation of U.S. digital asset taxation and how it compares with that of other countries.

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Whereas some countries don’t tax crypto at all, others tax them heavily. Overall, there's some ambiguity over how to tax cryptocurrencies, an emerging asset class.

The U.S. taxes cryptos gains

In the U.S., cryptocurrencies are treated as property, meaning that you have to pay taxes when you dispose of cryptos at a profit. According to the current taxation rules, if you sell a digital asset after holding it for less than one year, it would count as income.

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However, if you sell the asset after holding it for more than a year, it's seen as a long-term capital gain. Capital gains are taxed at 0, 15, and 20 percent, depending on your marital and filing status and total income.

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Tax offsetting is allowed for crypto losses

If you recorded a loss on the sale of digital assets in 2021, rest assured that tax deductions are allowed on such losses. Long-term capital losses on the sale of cryptos can be offset against long-term capital gains, and short-term capital gains on cryptos can be offset against short-term capital losses.

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You can also claim tax deductions on crypto losses

When you can't offset crypto losses against capital gains, you can claim a deduction of up to $3,000 in one tax year. And if your crypto losses in the year are more than $3,000, you can carry forward them to future years to claim as deductions or offset capital gains.

How does U.S. crypto taxation compare with other countries'?

Whereas the U.S. considers cryptos and other digital assets as property, they're treated as “private money” in Germany. As a result, there's no tax on profits on cryptos if they're sold after being held for over a year in the country. However, if the digital asset is disposed of within a year, it would be subject to capital gains tax in Germany.

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Under India's crypto taxation rules, gains on all digital assets are taxed at 30 percent, and no deductions are allowed on crypto losses. The country has some of the world's most stringent crypto taxation laws.

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Crypto tax havens

With crypto regulation becoming the norm, some investors are seeking crypto tax havens. Portugal has emerged as one, with no taxation of gains made on digital assets. That may not last long, though, as efforts to achieve global parity on crypto taxation grow.

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