Cryptocurrency Tax Reporting: Understanding Capital Gains and Losses

Short-Term Capital Gains

When you sell cryptocurrency assets within one year of acquiring them, the profits are considered short-term capital gains. These gains must be reported in the "CG Schedule" of your ITR-2 or ITR-3 tax return.

Capital Losses

Fortunately, losses incurred from crypto investments are eligible for tax write-offs similar to other investment losses. These losses must also be reported in the "CG Schedule" of your tax return.

Realizing Capital Losses

To claim capital losses from crypto investments, the loss must be realized. This means that you must have sold the cryptocurrency at a loss. Unrealized losses, where the cryptocurrency is still held, cannot be claimed.

Incurring a Capital Loss

If you sell a capital asset, such as cryptocurrency, for less than you paid for it, you incur a capital loss. This loss may be offset against other capital gains or used to reduce your taxable income.

Expert Insight

Andy Phillips, Director of the Tax Institute at HR Block SQ-11, emphasizes that it's crucial to understand the tax implications of cryptocurrency investments. By accurately reporting both gains and losses, taxpayers can ensure compliance with tax laws and avoid potential penalties.