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I invested 18K USD in alt coins mostly using my USD to buy bitcoin since the beginning of the year.

I managed to take out my capital of 18K. And my current holdings were at 17K USD worth of BTC 3 weeks ago when I bought some other coins which have become 40K USD worth of BTC now.

How much tax should I pay? BitcoinTax calculated a ridiculous figure saying I must pay $25k USD as taxes!

I lost about 20k USD in an alt coin called DGB which I bought a ton at a high when bitcoin was at 2.8k and sold it all for 1/10th of the original price. What should I do?

Rodrigo de Azevedo
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osho55
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1 Answers1

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You're a bit oblique as to the numbers, but the implications is that you bought 18k worth, then sold about half your holding and got 18k back. That would mean that the BTC you sold represents ~9k of what you put in, which means that you have realized ~9k in profit. However, you also have a 20k loss from DGB. You can't claim negative income, so you can use only 9k of that loss to offset your taxes. You should look into whether you can carry that loss forward. If not, one tactic would be to sell enough of your remaining coins to realize a total profit of 20k. If you want to still the coins, you can buy it back again and have an increased basis.

The $25k tax figure from BitcoinTax likely was based on how much you would owe if you sold all of your BTC, but you don't owe taxes if you don't sell. You apparently have a realized profit of 9k and unrealized 8k from the original BTC, and an unrealized profit from the other coins of 40k minus whatever you paid for them.

Also, the IRS classifies BTC as a capital asset, so if you hold it for more than a year, the income is long-term capital gains.

EDIT: David Schwartz brings up a good point that buying the coins back can be problematic, so you probably should discuss that with a tax adviser if you're interested in pursuing it.

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