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New IRS Guidance January 2023

The IRS has released new guidance on the tax treatment of digital assets, specifically in relation to charitable deductions and losses from trades.


First, the IRS has declared that charitable deductions for gifts of digital assets will now formally require an appraisal. This means that if an individual wants to make a charitable donation of cryptocurrency, they will need to have the value of the digital asset appraised by a qualified appraiser. This is in line with the IRS's treatment of other non-cash assets, such as real estate or artwork, which also require appraisals for charitable deductions.


Second, the IRS has officially determined that no taxable loss is allowed in the event that a traded crypto asset's value falls to lower than a penny. This is because digital assets are considered to have some degree of value, even if it is very small, and the taxpayer still has the ability to trade the asset. This is an important clarification, as it means that taxpayers cannot claim a loss if a digital asset's value falls to a very low level.


However, the IRS also indicates that a real sale of the cryptocurrency would have produced a capital loss, and abandonment of the digital asset would have produced a miscellaneous itemized deduction which is currently disallowed. This means that if a taxpayer chooses to sell a digital asset at a loss, they can claim that loss as a capital loss. But if they choose to abandon the digital asset, they cannot claim a loss.


The IRS's guidance on digital assets is still evolving, and it's important for taxpayers to stay informed about the tax treatment of these assets. If you have questions about your own tax situation, it's best to consult a tax professional.


In light of this, it's important for tax payers to stay informed about the tax treatment of these assets. Tax professionals are available to assist taxpayers in claiming tax losses from digital assets. It's important for individuals to stay informed about the tax treatment of digital assets, and consult a tax professional if they have any questions. As the IRS's guidance on digital assets is still evolving, it's important to stay up to date with the latest developments.


If you wish to read the guidance yourself, check it out here using this link: https://www.irs.gov/pub/irs-wd/202302011.pdf

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