Capital Gains tax-Crypto?

Lorne Malvo

Does anyone have any experience in borrowing against your crypto on a lending platform?

Mickey Mania

Just wondering about losses in relation to gains in terms of capital gains tax. If I traded 7000 euros worth of Dodge coin that I originally bought for 1000 euro and traded it for 0.1 bitcoin, I would make 6000 euros profit. A few months down the line and Bitcoin dumps. That 0.1 bitcoin is now worth 4000 euros. If I sold that 0.1 bitcoin into fiat, thereby realising the loss and took 33.3% of that 4000 euro to pay for tax, could I also immediately buy back bitcoin at its lower price using the remaining 66.7% of cash without any further tax liability? Would it be possible to use my loss of 2000 euros against my gain, and pay 1332 euros worth of tax minus the exemption of 1270? Also would sending new amounts of bitcoin to the same address complicate tax owed in that you would have bought 1 bitcoin and added it to the same address, which originally held just the 0.1 bitcoin you're now intending to sell to realise a loss? Also is the cgt exemption separate from income tax credit? In addition, if someone were to earn interest on their crypto, do they pay the 33% interest tax on it and should this be paid annually or monthly? How does tax work with yield farming?

Mellor

Mickey Mania wrote: »

If I traded 7000 euros worth of Dodge coin that I originally bought for 1000 euro and traded it for 0.1 bitcoin, I would make 6000 euros profit. A few months down the line and Bitcoin dumps. That 0.1 bitcoin is now worth 4000 euros. If I sold that 0.1 bitcoin into fiat, thereby realising the loss and took 33.3% of that 4000 euro to pay for tax, could I also immediately buy back bitcoin at its lower price using the remaining 66.7% of cash without any further tax liability?

There are two trades there. +6k Doge. -3k BTC
So CGT is 33% of +3k not 4k.
CGT is calculated on the gain/loss. Not the selling price. So tax liability is 1k.

You can’t immediately buy the same assets back. You have to wait 4 weeks.

Would it be possible to use my loss of 2000 euros against my gain, and pay 1332 euros worth of tax minus the exemption of 1270?

As above, you can only offset the loss if you wait weeks to reinvest. The tax is 1k, and yes you could minus the exemption. So the 4k you sell for is all yours.

Also would sending new amounts of bitcoin to the same address complicate tax owed in that you would have bought 1 bitcoin and added it to the same address, which originally held just the 0.1 bitcoin you're now intending to sell to realise a loss?

Sending it is irrelevant. Do you mean buying new BTC?
If you buy more BTC after the first trade. Then it does factor if you only sell the original 0.1btc.

Also is the cgt exemption separate from income tax credit?

In addition, if someone were to earn interest on their crypto, do they pay the 33% interest tax on it and should this be paid annually or monthly? How does tax work with yield farming?

It’s not entirely clear. But if your crypto earns crypto by holding/staking. Then you would likely be expected to pay CGT on the disposal of those as seats.
I’m not sure what you mean by interest tax.

nathan99

Hi Guys

I came across something interesting , I see a few people online converting their bitcoin to wrapped bitcoin when ever there is a dip and then counting that loss and using it in the future to offset gains. thus not paying much CGT ( assuming bitcoin recovers )

any one else doing this?

Bob24

nathan99 wrote: »

Hi Guys

I came across something interesting , I see a few people online converting their bitcoin to wrapped bitcoin when ever there is a dip and then counting that loss and using it in the future to offset gains. thus not paying much CGT ( assuming bitcoin recovers )

any one else doing this?

I don't quite get the idea.

Let's say you buy 100 euros worth of BTC.

There is a price crash and their value is now 50 euros, you convert to WBTC. -> you have realised a 50 euros loss on the BTC and the WBTC have an acquisition cost of 50 euros.

The price then recovers and your WBTC are back to 100 euros.

You swap the WBTC back for BTC. -> you have realised a 50 euros gain on your WBTC and the acquisition cost of 100 for your BTC.

At the end of the day you have a 50 euros loss followed by a 50 euros gain (net CGT liability:0), and an acquisition cost of 100 euros for your BTC. I.e. you are back to square one.

Am I missing something?

One scenario whereby it could make sense is of the person intends to never convert the WBTC back to BTC and to never dispose of it while being a tax resident in Ireland (in that case they can use the loss to offset it against gains on other assets right now, and since they are planning on moving abroad and never disposing of the WBTC while still being liable for Irish CGT, they won't even have to pay CGT on any realised gain).

Donald Trump

Sounds like a misunderstanding of tax loss harvesting. If you are reading it online, it might be people in the US you are reading

Mickey Mania

nathan99 wrote: »

Hi Guys

I came across something interesting , I see a few people online converting their bitcoin to wrapped bitcoin when ever there is a dip and then counting that loss and using it in the future to offset gains. thus not paying much CGT ( assuming bitcoin recovers )

any one else doing this?

Reading this and based on my limited understanding, it can be used to realise a loss and protect against volatility of Bitcoin? So if you buy Bitcoin, it drops 1000 euro and you convert to a different asset, as WBTC is an ERC20 token, then you've realised a loss. Just wait a month and if Bitcoin is still around that price level, you can buy back in with a lower tax liability. But if Bitcoin were to go up 9000 euro, you still have a roughly equivalent value in WBTC which you can hold onto and sell if you're in a more favourable position. It seems to work better in the UK where they have a much larger allowance and fairer CGT tax rates and as far as I know the HMRC regard trading BTC to WBTC as a taxable event, therefore different assets and so you can use it for tax loss harvesting.

Mellor

Mickey Mania wrote: »

So if you buy Bitcoin, it drops 1000 euro and you convert to a different asset, as WBTC is an ERC20 token, then you've realised a loss. Just wait a month and if Bitcoin is still around that price level, you can buy back in with a lower tax liability. But if Bitcoin were to go up 9000 euro, you still have a roughly equivalent value in WBTC which you can hold onto and sell if you're in a more favourable position.

But the lower tax liability is offset by the lower cost when you trade back.
It’s also means that if the price rises, you gain on the WBTC is now 9k rather than the 8k it would have been if you held. There’s a benefit, but that isn’t it.

Bob24 wrote: »

I don't quite get the idea.

...

Am I missing something?

It facilitates bed and breakfasting.
You have to wait 4 weeks before buying shares you offset as a loss. This allows you to rebuy them instantly.

Also, say I lost 3k on Doge, it’s coming up to tax year, and my btc is up 6k. I can trade to WBTC, realise the gain, offset the loss and the net is 3k, 1k CGT which is under the exemption.
So I’ve no tax liability, but my acquisition cost is not 6k higher. Meaning I’ve lower “gain” for tax purposes in future.

It allows you to dispose without disposing.

Bob24

Mellor wrote: »

Also, say I lost 3k on Doge, it’s coming up to tax year, and my btc is up 6k. I can trade to WBTC, realise the gain, offset the loss and the net is 3k, 1k CGT which is under the exemption.
So I’ve no tax liability, but my acquisition cost is not 6k higher. Meaning I’ve lower “gain” for tax purposes in future.

OK. Actually, there are two things here.

1) Even if you don't have that loss on Doge you can still harvest your CGT exemption by converting the right amount of BTC to WBTC.

2) The Doge part is separate and is a way to offset a loss immediately instead of carrying it forward for future years.

So yes it makes sense if people either don't have enough realised gains in the current year to offset their realised losses against; or if they haven't made enough gains to meet their CGT exemption threshold.

I don't think I would personally bother though, unless I had a large backlog of unused losses carried-over across multiple years that I want to get ride of (in that case there could indeed be a significant benefit).

Mickey Mania

Mellor wrote: »

But the lower tax liability is offset by the lower cost when you trade back.
It’s also means that if the price rises, you gain on the WBTC is now 9k rather than the 8k it would have been if you held. There’s a benefit, but that isn’t it.



It facilitates bed and breakfasting.
You have to wait 4 weeks before buying shares you offset as a loss. This allows you to rebuy them instantly.

Also, say I lost 3k on Doge, it’s coming up to tax year, and my btc is up 6k. I can trade to WBTC, realise the gain, offset the loss and the net is 3k, 1k CGT which is under the exemption.
So I’ve no tax liability, but my acquisition cost is not 6k higher. Meaning I’ve lower “gain” for tax purposes in future.

It allows you to dispose without disposing.

I know I'm missing something so perhaps you could clarify it for a dumbo, but I thought that if you sold your asset at a loss, and waited for 4 weeks or just over 4 weeks, you could buy back that same asset while preserving the loss?

nathan99

Hi guys,

So donald trump was right it was tax loss harvesting is the correct term that i was referring to,

so it seems its a thing in the U.S not in Ireland really?

Donald Trump

nathan99 wrote: »

Hi guys,

So donald trump was right it was tax loss harvesting is the correct term that i was referring to,

so it seems its a thing in the U.S not in Ireland really?

The Donald is always right .

"Tax loss harvesting" is a general term that really just means realising some losses to offset gains to minimize your taxes payable now.

It can also be used, say if you are in a country where they have different rates for income vs. capital gains taxes and definitions based on time for holding positions. So say if you need to have held them for 6 months for it to be considered a capital gain and the CGT is less than the income tax.
Well, in that case, what you might do if you want to realise a gain on a short term play, but not pay the higher rate of tax, you might instead cash out a few losers at the same time in order to minimize or eliminate the tax due at that time (or the end of the year). So you maybe cash out the bitcoin, but buy something highly correlated with it. Because you actually want to keep the bitcoin exposure. As you have realised the loss on your bitcoin, it eliminates the gain (on paper) you have made with the other trade. So no tax to pay. Then you hope that later on you will "win" on your bitcoin proxy and realise those gains under the longer term CGT rate on your profits. This is what I think they might be doing. I don't know. Just thinking out loud. And don't take the above as any kind of advice for a strategy on it's own!



I only mentioned the US because people over there would be more familiar with the concepts I'd say than in Ireland.

Mellor

Bob24 wrote: »

OK. Actually, there are two things here.

1) Even if you don't have that loss on Doge you can still harvest your CGT exemption by converting the right amount of BTC to WBTC.

Yes. The loss allows you to convert a greater amount. This is not possible with shares - thus this is a advantage of WBTC.

2) The Doge part is separate and is a way to offset a loss immediately instead of carrying it forward for future years.

There are clear benefits to offsetting it sooner though.

Say I carried that loss forward. And the following year I made no losses, and another 6k gain.

That would put me at a -3/+12 over the two years. Tax liability is 3k less the allowance so 1.8k. Where as if you had offset, it would be 800.

And you are right that you can always sell to maximise your exemption. But that requires to to sell, thus giving up future potential, the bonus here is that you can have your cake and eat it.
It's a minor benefit due to the low exemption, but the rule exists for a reason, this allows you to skirt it.

Mickey Mania wrote: »

I know I'm missing something so perhaps you could clarify it for a dumbo, but I thought that if you sold your asset at a loss, and waited for 4 weeks or just over 4 weeks, you could buy back that same asset while preserving the loss?

nathan99 wrote: »

Hi guys,

So donald trump was right it was tax loss harvesting is the correct term that i was referring to,

so it seems its a thing in the U.S not in Ireland really?

It's called bed and breakfasting in Ireland/UK. There are rules doing it in certain ways. The existence of WBTC allows you to avoid those rules without breaking them. Benefit is limit due to the poor exemption.

Donald TRump wrote:

Well, in that case, what you might do if you want to realise a gain on a short term play, but not pay the higher rate of tax, you might instead cash out a few losers at the same time in order to minimize or eliminate the tax due at that time (or the end of the year). So you maybe cash out the bitcoin, but buy something highly correlated with it. Because you actually want to keep the bitcoin exposure. As you have realised the loss on your bitcoin, it eliminates the gain (on paper) you have made with the other trade. So no tax to pay. Then you hope that later on you will "win" on your bitcoin proxy and realise those gains under the longer term CGT rate on your profits. This is what I think they might be doing. I don't know. Just thinking out loud. And don't take the above as any kind of advice for a strategy on it's own!

That would work in there were different rates based on time, as there are in some countries.
In Ireland and UK, there are limits on how long you have to wait to reinvest after offsetting a loss. You can't rebuy Tesla stock for a month if you are using sold it for an offset loss.
With pegged tokens, you can sell one and buy the other.

Connavar

Just for those who might get confused by the wording on the revenue site like i did.

You dont need to register as a sole trader if you are a paye worker. You just open an enquiry in the revenue site and ask them to register you for the cgt tax head (if your not already)

At that point you fill in the cg1 form as others have mentioned