Cryptocurrency traders are turning worthless NFTs into tax credits. They use a service started for this purpose only. Others are taking advantage of IRS tax loopholes to get tax credits on their losses of BTC, ETH, and more this year.
This is how bad the crypto winter can be when frost settles over the planet’s northern hemisphere. But in a sign of perseverance and entrepreneurial spirit, the cryptocurrency markets are responding. NFT buyers are now helping people with their underwater smart contracts. They help sellers offload their unwanted NFT and get an official receipt for their tax credits.
Investors take losses on NFTs to get tax credits
It’s no different than after the 2008 financial crisis, when billions of dollars in mortgage-backed securities (MBS) became toxic. They were discharged for the large tax breaks. Banks and financial institutions that had become entangled in the then innovative derivatives markets bailed them out.
However, it is also very different from what happened after the 2008 crisis. Because most of these toxic assets were bought by the government and the central bank. It was like a big corporate bailout for the banks that took losses in that decade’s housing and lending bubble.
Creativity in cryptocurrency keeps the wheels spinning
Instead, with loss-laden NFTs, the free market and entrepreneurship prevail again. NFT buyers emerged to solve a problem created by the free market and entrepreneurship. Complies with the ethics of the cryptocurrency sector and the freedom of the free and open Web3 Internet. Plus, there are tax credits, so it’s federally friendly, too.
The Guardian reported on Thursday:
Now — along with the broader crypto market — appetite for NFTs has waned to the point that a niche market has arisen for collectors looking to sell highly valued ‘digital collectibles’ as tax losses to offset their income tax bills.
Offloading unsaleable NFTs isn’t the only way cryptocurrency investors are taking a tax break from huge losses this crypto winter. They also sell their unrealized losses and buy back to realize a loss for tax purposes while holding their long positions for a future rally.
How do cryptocurrency traders get other tax breaks?
The tax loophole is that cryptocurrencies are considered property, not security, so the 30-day stock-laundering rules don’t apply to them. This means that if you hold a position at a loss, you can sell your position and buy back to offset losses for any gains to reduce your tax liability from crypto investments.
Microstrategy took advantage of the tax benefits from this loophole in the last quarter of 2022, according to one of the recently published documents. The Michael Saylor-led company raised an additional $42.8 million in BTC from early November to the end of December. But it also sold about $12 million during that time for tax purposes.
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