Download This PaperTax-Loss Harvesting with Cryptocurrencies
58 Pages Posted: 17 Feb 2022 Last revised: 29 Apr 2022
Abstract
We study investors' responses to increasing tax reporting awareness and scrutiny in the crypto markets. We document significant taxation effects on investors' behavior and preferences for crypto exchanges using novel data on retail investors' trading. In relation to international peers, U.S.-based investors decrease taxable events while exploiting tax-loss harvesting to balance portfolio losses. We further examine billions of trades on the trading books of large crypto exchanges and discover widespread tax-loss harvesting trades on U.S.-based crypto exchanges, amounting to billions of dollars in tax revenue losses for the government. Finally, we discuss ongoing anti-tax-loss harvesting proposals in anticipation of traders' likely reactions.
Keywords: Tax-Loss Harvesting, IRS, Trading Behavior, Cryptocurrencies, NFT, DeFi.
JEL Classification: G15, G18, G29, K29, K42, O16.
Suggested Citation: Suggested Citation
Lin Cong
Cornell University - Samuel Curtis Johnson Graduate School of Management ( email )
Ithaca, NY 14853
United States
HOME PAGE: http://www.linwilliamcong.com/
Wayne R. Landsman
University of North Carolina Kenan-Flagler Business School ( email )
McColl Building
Chapel Hill, NC 27599-3490
United States
919-962-3221 (Phone)
919-962-4727 (Fax)
Edward L. Maydew
University of North Carolina at Chapel Hill ( email )
McColl Building
Chapel Hill, NC 27599-3490
United States
919-843-9356 (Phone)
HOME PAGE: http://www.kenan-flagler.unc.edu/faculty/directory/accounting/edward-maydew