Investors weathered stock turbulence, a crypto winter, and a housing downturn last year — all of which could have some significant tax implications.
For instance, investors can use their crypto losses to their advantage, while those investing in real estate have one last year to fully capitalize on a. key depreciation deduction. And some who were able to eke out gains in the stock market may find they owe no capital gains taxes on their fortune — if they meet certain income thresholds.
As the nation’s tax-filing season gets underway, here are three things investors should know this year.
How to write off crypto losses
Investors could get a tax break if they had money in crypto companies that filed for chapter 11 bankruptcy, such as Voyager, Celsius, and BlockFi. That’s because once their bankruptcy statuses are settled by the court and their currencies lose all their value, taxpayers can declare their investments worthless and take the capital loss deduction, Lisa Green-Lewis told Yahoo Finance, a CPA and TurboTax tax expert.
“If there are bankruptcy proceedings, they are going to have to wait to see what the outcome is because if there’s anything left over, they may get it back,” Greene-Lewis said. “The best thing [taxpayers] can do is gather their documents, so that they have the costs. If it is deemed worthless, then they can write that off.”
Another potential crypto loss deduction is the Ponzi scheme loss on Form 4684.
“If your crypto investment is ruled as a Ponzi scheme investment,” Greene-Lewis wrote in TurboTax blog, “then you may be able to deduct your loss as casualty loss if you itemize your tax deductions.”
Still, none of the troubled crypto companies have been ruled a Ponzi scheme, even though several users of FTX and one lawmaker likened the bankrupt crypto exchange to a Ponzi scheme.
“They arrested Samuel Bankman-Fried, so it hasn’t gone through the courts yet,” Larry Pon, a CPA and a personal finance specialist in Redwood, Calif., told Yahoo Finance. “So I think we’ll learn more as it goes through the courts.”
And if taxpayers do take a Ponzi scheme deduction, Pon said: “Take the loss at your own risk, but document it.”
Otherwise, investors can take crypto losses like they would any capital gains or losses. More on that later.
Last year for 100% bonus depreciation
Real estate investors, such as those who own rental properties, can claim 100% bonus depreciation for the last time on their 2022 tax return before the regulation starts to sunset in 2023. The benefit, enacted by the Tax Cuts and Jobs Act (TCJA), allows rentals and businesses to take a 100% depreciation deduction upfront on qualified assets.
“Anything that has a 20-year lifespan or less qualifies for bonus depreciation,” Grant Dougherty, an enrolled agent and founder of Dougherty Tax Solution, told Yahoo Finance. “You could essentially depreciate 100% of the cost in the first year.”
Qualified assets include items like appliances, kitchen countertops, and even outdoor pools.
“Now you would want to look and make sure that it makes financial sense,” said Dougherty, “but yes, a pool does qualify for 100% bonus depreciation.”
However, residential and commercial rental buildings use regular depreciation rather than the bonus as they have 27.5 and 39 years lifespans, according to the IRS.
The full bonus depreciation begins to phase out this year. Qualified assets in 2023 get a reduced 80% bonus depreciation. And the depreciation declines by 20% every year after that until it phases out completely.
Capital gains and losses
Single investors earning up to $41,675 could pay no long-term capital gain taxes for the tax year 2022, thanks to the new inflation-adjusted brackets released by the IRS that increased the limit from $40,000 in 2021. Married couples filing jointly have a 0% tax threshold at $83,350 per household, up from $80,800 last year.
For the tax year 2023, the 0% long-term capital gain limit is increasing even more to $44,625 for single filers and $89,250 for married filing jointly couples.
Taxpayers who sold investments that they’ve held on for more than one year pay less taxes on capital gains than ordinary wages. These investments include stocks, real estate, and cryptocurrencies. The rates are 0%, 15%, or 20%, depending on income and filing status.
In addition to preferential rates for long-term capital gains, all investment gains can be offset by capital losses. Investors should offset losses against the same type of gains first, whether short or long term, then deduct against other types of gains.
“From a tax perspective, if you have any positions that have any unrealized losses, and maybe you want to dispose of that position, go ahead and lock in,” said Dougherty. “You can use that capital loss to offset any capital gains you may incur.”
If there are no capital gains to offset — or your losses exceed your gains — you can use up to $3,000 of capital losses to deduct against ordinary income, such as wages, bonuses, rent, or interest earnings. Any unused capital losses can be carried forward to the future.
Unlike updated capital gains tax rate brackets, the $3,000 that can be used against ordinary income is not adjusted for inflation. This deduction has remained the same for the last half century.
“It’s been $3,000 for 50 years, over 50 years because it’s indexed to inflation,” Pon said. “Because when the law was written, Congress did not give the IRS authority to inflate that number with inflation.”
Rebecca is a reporter for Yahoo Finance.
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