Can Crypto Losses Offset Stock Gains?

Cryptocurrency investments can be highly volatile, leading to both gains and losses. But did you know that crypto losses can actually work in your favor when it comes to taxes? If you have capital gains from stocks or other investments, you can use cryptocurrency losses to offset them, potentially lowering your overall tax liability.

In this guide, we’ll explain how U.S. taxpayers can use crypto losses to offset stock gains for the 2024 and 2025 tax years, including tax-loss harvesting, IRS rules, and best practices for tracking gains and losses.

Offsetting Stock Gains with Crypto Losses

The IRS treats cryptocurrency as property, meaning that capital losses from crypto can be used to offset capital gains from other investments—including stocks and bonds.

Here’s how it works:

1. Offset gains of the same type first

   • Short-term losses offset short-term gains (held ≤1 year).
   • Long-term losses offset long-term gains (held >1 year).
   • If losses exceed gains in one category, the excess can be applied to the other.

2. Offset your ordinary income

   • If total losses exceed your gains, you can deduct up to $3,000 ($1,500 if married filing separately) against ordinary income per year.
   • Any remaining losses carry forward indefinitely to offset future gains.

Example: Offsetting Short-Term Capital Gains

Suppose you have:

• $5,000 in short-term stock gains
• $8,000 in short-term crypto losses

Step 1: Offset the $5,000 of stocks gains with $5,000 of your crypto losses, eliminating taxable gains.
Step 2: Apply the remaining $3,000 loss to reduce your ordinary income.
Step 3: If losses exceeded this amount, the surplus would carry forward to future tax years.

Tax-Loss Harvesting Strategies for Stocks and Crypto

Using losses to offset gains is often utilised by tax-loss harvesting strategies. Tax-loss harvesting is a strategy where investors sell underperforming assets to realize losses, which can then offset taxable gains.

How to Harvest Crypto Losses

1. Review your portfolio. Identify crypto assets that have decreased in value.
2. Sell assets at a loss. Execute trades before year-end to realize losses.
3. Use losses to offset gains. Apply losses against capital gains from stocks or other investments.

Avoiding Common Mistakes

• Not tracking cost basis. Accurate records are essential for tax compliance.
• Ignoring IRS reporting rules. Even small transactions must be reported.

How to Track Your Capital Gains and Losses for Crypto

Manually Tracking Crypto Transactions

If calculating gains and losses manually:

1. Record every transaction. Include dates, purchase amounts, and sale prices in USD.
2. Calculate cost basis. Subtract the original purchase price from the sale price including any fees to determine gains or losses.
3. Factor in fair market value. When trading one crypto for another, use the FMV at the time of exchange.
4. Net your gains and losses. Separate short-term and long-term calculations, then apply offsets accordingly.
5. Use spreadsheets or tax software. Manual tracking is complex; automated tools like Crypto Tax Calculator help minimize errors.

Using Crypto Tax Calculator to Track Your Gains and Losses

Manually tracking crypto taxes is time-consuming and prone to mistakes. Crypto Tax Calculator simplifies the process by:

• Automatically categorizing trades.
• Calculating gains, losses, and tax liabilities.
• Generating Form 8949 for accurate tax reporting.

Reporting Requirements and Documentation For Crypto Losses

You will need to report any losses from crypto on the following forms.

• Form 8949 – Reports detailed capital gains and losses.
• Schedule D (Form 1040) – Summarizes total capital gains/losses on your tax return.

Best Practices for Record Keeping

• Download CSV files from exchanges.
• Use crypto tax software like Crypto Tax Calculator to automate profit and loss calculations.
• Maintain wallet transaction logs for future reference and audits.

How Capital Gains and Losses work

What Are Capital Gains and Losses?

A capital gain occurs when you sell an investment for more than you paid for it, while a capital loss happens when you sell for less than your purchase price.

Short-Term vs. Long-Term Capital Gains

• Short-term (held ≤1 year) – Taxed as ordinary income (10%-37%).
• Long-term (held >1 year) – Taxed at reduced rates (0%, 15%, or 20%).

Capital Gains Tax Rates for the 2024-2025 Tax Year

How the IRS Classifies Cryptocurrency

The IRS considers cryptocurrency property, meaning crypto transactions are taxable events, including:

• Selling crypto for fiat (e.g., USD).
• Trading one crypto for another.
• Using crypto for purchases.
• Receiving crypto as income (e.g., mining or staking rewards).

Sources

- Publication 550 (2024), Investment and income expenses, IRS
- Publication 544: Sales and Other Dispositions of Assets, IRS
- Form 8949, IRS
- Schedule D (Form 1040), IRS