How Frozen Crypto Funds Could Generate A Tax Write-off For Investors
— Partial recovery, Bad, Yield, Offset future income, Whenas mentioned, Resume withdrawals, Frozen funds, Small silver lining, Debts, Tax — 1 min read
A handful of crypto yield generating platforms, such as Celsius, Voyager Digital, Babel Finance, CoinFLEX are facing liquidity crunches and froze or limited withdrawals as a result of the recent crypto crash and liquidity crunch. Investors might be able to use an obscure tax deduction called Nonbusiness Bad Debt (§166(a)(d) to write off losses and get some tax relief. A nonbusiness bad debt is a loss from the total worthlessness of a debt you extended to another party. This specific deduction can only be applied to debt instruments like stocks, commodities, coins, and tokens. The deduction is treated as a short-term capital loss and is subject to the $3,000 annual capital loss with our example, below. Source