Tax loss harvesting is a strategy to lower your taxable income. While you cannot directly harvest tax losses through CoinTracker, we offer a tax loss harvesting tool for Prime and Ultra plans which can help you decide which assets to sell.
Here’s how it works:
- Sell assets that are worth less than what you originally paid.
- Use those losses to offset gains from other investments.
The result: a lower tax bill.
Example
An example of tax loss harvesting is if you:
- Buy $25,000 worth of crypto A.
- Later, sell crypto A for $28,000, realizing a $3,000 capital gain.
- In the same year, sell crypto B for $25,000, which you originally bought for $30,000, realizing a $5,000 capital loss.
Using tax loss harvesting, the $5,000 loss from crypto B offsets the $3,000 gain from crypto A. This means you’ve eliminated the taxable gain, and the remaining $2,000 loss can either offset other gains in the same tax year or reduce your overall taxable income.
For more information about tax loss harvesting and how it affects crypto taxes, wash-sale rules, and other important considerations, refer to our Crypto Tax Loss Harvesting Guide.
When to harvest tax losses
Tax loss harvesting can be done anytime the market value of your asset drops below the original purchase price, known as its cost basis. In order to lower your 2024 taxes, you need to sell assets at a loss anytime during 2024.
Using the tax loss harvesting tool in CoinTracker
The tool provides:
- Assets to consider for tax loss harvesting
- The wallet holding the asset
- Amount to consider selling
- Estimated maximum harvestable loss
You can sort assets based on cryptocurrency, wallet, amount to sell, market value, cost basis, or max harvestable loss.
About the tax lots table
When you buy or sell cryptocurrency, each transaction creates a tax lot, which records how much you paid for the asset and when you bought it. The tax lots table, found under Crypto you can sell at a loss, shows these records.
This table helps you figure out which assets to sell based on your cost-basis method, making it easier to lower your taxes. Here’s how different methods are sorted and what they mean:
- Highest In, First Out (HIFO): Sorts by highest average cost basis first.
- Last In, First Out (LIFO): Sorts by acquired date, showing the newest assets at the top.
- First In, First Out (FIFO): Sorts by acquired date, showing the oldest assets first.
Each method helps you decide which assets to sell to reduce your tax bill by selecting the ones that have the biggest impact on your capital gains.
Ensure max harvestable loss accuracy
For accurate results, before using the tool:
- Ensure your account is accurate
- Verify your cost basis method settings
- Verify your cost basis tracking settings
The accuracy of the calculations depends on having an accurate account, and the numbers in the tax loss harvesting tool is affected by your cost basis method and cost basis tracking settings.
Tips for tax loss harvesting
- Identify assets: Determine which assets you hold at a harvestable loss.
- Sell the assets: Sell the amount of the asset for cash, a stablecoin, or another cryptocurrency.
- Repurchase the assets: If you wish to maintain your portfolio composition, repurchase the same amount of the asset.
- Transfer assets: Move the assets back to the wallets for long-term holding.
- Sync your dashboard: Update your CoinTracker dashboard from the Wallets page.
- Review transactions: Check the tax loss transactions on the Transaction page to verify the Gains column.
These tips are an example of how the tax loss harvesting tool could be used, for informational purposes only, and is not meant as tax advice. For tax advice please speak with a tax professional. See our full disclaimer.