Victims of crypto and NFTs fraud will get some tax benefits. As you know, most people who lost their money in crypto or NFT frauds can’t get it back; however, they may be eligible for some tax benefits, which can help them to minimize their losses.
More about crypto and NFT frauds
Bitcoin became a new sensation in 2017 when the value skyrocketed almost overnight to nearly 20,000 dollars per coin. A few years later, NFTs, also known as non-fungible tokens, became a worldwide sensation. Promoters of NFTs mentioned that their uniqueness would turn them into collectibles, creating market demand and allowing them to enjoy a profit when it’s sold later.
Unfortunately, many crypto and NFTs have gone bust in the last few months. Sometimes, the creators and promoters could not reach their promised goals. But most others were scams where the creators did not intend to pay a single penny to the investors and would disappear after taking the investor’s wealth.
While most victims of crypto and NFTs frauds will not be able to get their invested money back anyway, they will be eligible for some tax benefits, which can be helpful for them. And the most beneficial will be the theft loss deduction, which they can use to offset their ordinary income.
More on Theft Loss deduction
The IRS’s definitive guidance, which concerns the US tax department of crypto, is in notice 2014-21. It clearly states that such currencies are treated like property, so the price paid for the coins becomes the cost basis. There will be a capital gain or loss on the transaction if it’s sold in the future. Unfortunately, some tax papers will not be happy to take up capital losses, so they can deduct the loss against their ordinary income only if they are in a high tax bucket which is very rare.
As you know, the victims of crypto and NFTs fraud will get some tax benefits; the taxpayer can claim it as they would normally do for a theft loss, as long as they meet the requirements above.
What are your thoughts on the tax benefits given to the victims of crypto and NFTs frauds? Do you think the tax benefit should also be available for low-tax bracket individuals? Let us know in the comments below. And, if you found our content informative, share it with your family and friends.