This article is part of TokenTax's Cryptocurrency Tax Guide.
Cryptocurrency capital gains and losses only count towards your taxes once realized
Gains on crypto (and property in general) are not “realized” until you sell, exchange, or spend the asset. This means that if you only bought BTC once and held it, never selling or exchanging it, then you don’t have any realized, taxable gains or losses — only unrealized gains or losses. If you are holding a crypto asset at a loss, you can only claim that loss by selling the asset.
It’s good practice to be mindful of what your unrealized gains/losses are. Many crypto traders were caught off guard when handling their 2017 and 2018 crypto taxes, as they may have exchanged their BTC for altcoins — triggering a large gain at the end of 2017 due to the market’s peak.
Then, when those altcoins dropped in value, they were expecting a loss when filing for 2018 taxes, only to realize that they couldn’t claim the loss because they hadn’t sold those coins yet, thus not having realized the loss.
Keep an eye on your unrealized gains and losses with tax tools
Remember: you only are liable for tax when you have realized gains. But also keep in mind that you can only claim losses on your taxes if you have realized the losses. Our Tax Loss Harvesting tool can help you keep tabs on what your unrealized gains and losses are, so that you can strategically harvest your losses to potentially lower your tax liability. You'll be able to see what unrealized gains you have waiting as well.