The cryptocurrency sector has gained significant attention recently, with many individuals and businesses investing in digital assets. However, the volatile market has led many investors to losses.

In a recent development, tax law researchers have proposed a framework for the Internal Revenue Service (IRS) to allow taxpayers to deduct cryptocurrency losses on their tax returns. The proposed framework provides a clear and consistent approach for taxpayers to claim deductions on cryptocurrency losses.

Internal Revenue Service Framework For Crypto Deductions

The proposed framework surfaced following the examination of the present state of the digital currencies tax law in the U.S. by research scholars at the University of Maine and Indiana University.

The paper defines possible losses associated with individuals and businesses investing in digital currencies and suggests a framework to manage such occurrences. It suggests that taxpayers should deduct digital asset losses on their tax returns in the same way as they can deduct losses from other investments, such as stocks and bonds.

However, it cited that this leverage will be based on certain guidelines, noting that digital asset losses follow the same laws binding other capital assets. As such, taxpayers are allowed to deduct capital gains but not those from income. Still, certain distinctions exist regarding the amount and the time the deductions can occur.

Based on the guidelines, crypto losses incurred from exchange and sales will have deduction limitations. On the other hand, those incurred from hacks or abandonment through events like burning are open for a total deduction. This is seen in the data from IRS publication 551 in the 409 topics.

Facts Surrounding The Internal Revenue Service Framework

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Author: Eli Dambel

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