Tax-Loss Harvesting with Cryptocurrencies

58 Pages Posted: 17 Feb 2022 Last revised: 29 Apr 2022

See all articles by Lin William Cong

Lin William Cong

Cornell University - Samuel Curtis Johnson Graduate School of Management; National Bureau of Economic Research (NBER)

Wayne R. Landsman

University of North Carolina Kenan-Flagler Business School

Edward L. Maydew

University of North Carolina at Chapel Hill

Daniel Rabetti

Tel Aviv University - Coller School of Management

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

Cong, Lin and Landsman, Wayne R. and Maydew, Edward L. and Rabetti, Daniel, Tax-Loss Harvesting with Cryptocurrencies. Available at SSRN: https://ssrn.com/abstract=4033617 or http://dx.doi.org/10.2139/ssrn.4033617

Lin Cong

Cornell University - Samuel Curtis Johnson Graduate School of Management ( email )

Ithaca, NY 14853
United States

HOME PAGE: http://www.linwilliamcong.com/

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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

Daniel Rabetti (Contact Author)

Tel Aviv University - Coller School of Management ( email )

Ramat Aviv
Tel-Aviv, 6997801
Israel
972-54-9107234 (Phone)

HOME PAGE: http://https://en-coller.tau.ac.il/

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