Published in

Coinmonks

4 min readMay 23, 2022

New Crypto Holders Need to Know New IRS Crypto Tax Rules

Key Findings

Study finds 55% of current crypto holders acquired their first digital assets this past year.
Many new crypto owners are not prepared for recent IRS crypto tax updates.
A crypto-specific tax solution reduces IRS compliance risks, penalties, and fees.

Adoption of cryptocurrencies came into its own in 2021, with millions of new investors jumping into this volatile, high-reward asset class. For all these new users that joined in 2021, there are new crypto tax wrinkles that need to be considered.

Millions acquired crypto assets for the first time in 2021 — what are their tax implications

According to the 2021 Bitcoin Investor Study, produced by Grayscale investing, most crypto holders are new to the asset category. Specifically, 55% of investors who currently own Bitcoin began investing only within the last 12 months. So it’s safe to assume that not all of those new crypto investors are completely up-to-speed on all tax aspects of their new assets.

For instance, not all cryptocurrency transactions are taxable events — some are and some are not. Not only is it important to understand which transactions are taxable but also how those crypto transactions are affected by newly updated tax laws. Here are three such areas of tax law that have changed, and could shift more in 2022, that digital asset holders need to know about.

Will crypto exchanges issue 1099s to the IRS?

Under the infrastructure bill that was signed into law in November 2021, it had a provision to reduce possible cryptocurrency tax evasion that required crypto-trading exchanges to issue 1099-B forms of all user transactions to the IRS. However, one of the benefits of crypto assets is that they tend to be frictionless, nearly instance transactions that settle in minutes rather than days.

This flexibility allows holders to buy on one platform and then transfer their crypto to another exchange to store, stake, or sell it there. This creates real-world tax reporting issues regarding 1099 filings for crypto since the different exchanges only know part of the purchase and sale when those transactions occur on different platforms. There is still some room for updates from the federal government on this specific legislation, since actual implementation is a year away. Regardless how this tax issue settles out, a crypto-specific tax solution can easily help link all such transactions to help ensure crypto tax compliance for the 2021 tax year and beyond.

What is Section 6050i and how does it affect crypto transactions?

Another part of the infrastructure bill that’s worth mentioning is section 6050i of the tax code. Section 6050i requires people who receive more than $10,000 in a lump sum payment to file a report with the IRS — this specific provision has been expanded to include cryptocurrencies, starting next January.

Under section 6050i, any crypto transaction equivalent to $10,000 or more requires the seller of the digital asset to generate the 6050i report that includes a lot of detailed transaction information such as: the amount of cash received as well as the buyer’s name, addresses, and Social Security Number (SSN). This onerous reporting requirement could be repealed, but if not, an automated crypto tax service, such as Cointelli, could help comply with this crypto filing requirement as well.

What is the wash sale rule and will it apply to crypto transactions?

Currently, cryptocurrencies are not restricted by the “wash sale rule” that applies to stocks, which prevents harvesting investment losses to offset capital gains. The recent crypto downturn provided an opportunity to capture deductible tax losses that can be carried over for years. Say you bought Bitcoin at the market peak of more than $69,000 per coin in October 2021, you could have sold those assets at the December 31, 2021 price of $45,894 per coin. That transaction would be logged as a loss on the blockchain.

You could have then turned around and immediately repurchased the same number of coins you just sold. Basically, that would give you ownership of the same number of coins before the sale — making it a “wash,” but you would have also locked in a sizable, deductible loss that could be spread out for years. While you’re not allowed to do this with stocks because of a mandated 30-day waiting period on asset repurchases, it’s a legal tax benefit for crypto that’s still available. This wash sale rule may be closed in the future — possibly even for transactions in 2022. We will keep you updated on this.

Regardless, crypto investing can be complex. However, compliance with ever-changing crypto tax laws does not have to be complex with the proper tax solutions tools, such as Cointelli.

DISCLAIMER: This post is for informational purposes only and should not be interpreted or relied upon as a substitute for the advice of financial, legal, or tax professionals. This content also only addresses U.S. federal income tax consequences for U.S. citizens and residents and does not address tax consequences that may be relevant to a particular person subject to special rules, such as dealers or traders. You should consult with your own financial, legal, or tax professionals to report and file your crypto taxes or make decisions on your particular circumstances. The laws, regulations, or interpretation of the existing laws could change, which may adversely affect either prospectively or retroactively. The content of this post is subject to changes.

Join Coinmonks Telegram Channel and Youtube Channel learn about crypto trading and investing

Millions acquired crypto assets for the first time in 2021 — what are their tax implications

Will crypto exchanges issue 1099s to the IRS?

What is Section 6050i and how does it affect crypto transactions?

What is the wash sale rule and will it apply to crypto transactions?

Also, Read

Written by Cointelli