With the price of a Bitcoin dropping below $300 for the first in almost 12 months, many investors are looking at their portfolios and wondering what to do from here. Some are out. Some are waiting. Some are staying for the long haul.

Despite this, there are many people who bought Bitcoins, Dogecoin or other crypto-currencies in the last year that are now in the red. They have losses and are wondering if they need to deal with taxes.

One small silver-lining is that if you have a loss on an investment, you can reduce your tax bill.

Last March, the IRS in their Notice 2014-21 confirmed that crypto-currencies were to be taxed as property, which means that whilst any profits you make from selling crypto-coins are taxed as capital gains, so are losses.

It is therefore advisable to look at the positions of your coins and decide if you want to take advantage of the amount of losses you might have, in order to reduce your tax burden for the year.

Capital gains are split into long-term and short-term, the latter where you owned the asset for a year or less (calculated from the date you disposed of the asset less the day after you acquired it). Any long-term losses can be used to offset long-term gains. Short-term losses can be offset against short-term gains, which is taxed as income.

If you have more losses than gains, these are included in your tax return but only up to the value of $3,000. This means that you can only reduce your taxable income by that amount per year. Any remaining losses have to be carried forward to future tax years.

Therefore, if you bought coins at a higher price it may be advantageous to sell them before 31st December in order to declare losses.

• Crypto-currencies are currently not subject to the wash sale rule, which stops you from generating losses in this fashion with stock and securities. Although the IRS could change this at any time.
• You can therefore buy right back in again, if you wish, but there will still be a cost because of the difference in the sell and buy prices, as well as any fees you might incur.
• If you sell and generate more than $3,000 losses, you can only use $3,000 per year to offset income. You might therefore only want to create that amount of losses.
• If you sell and buy back, you will be resetting the cost basis of those coins to a lower value, but also the acquisition date. This matters if you sell or spend within the following year because they will again be treated as short-term capital gains. So if you are thinking of doing this, you might want to do it sooner rather than later.

Please consult with your tax professional, CPA or tax attorney when deciding any tax planning.