The outcome of SBF's prosecution could determine how the IRS treats your FTX losses
Will your losses to FTX be classified as capital losses or as a theft loss that involved a Ponzi scheme? Either way, youll probably win.
FTX founder Sam Bankman-Fried has received official criminal charges after the collapse of his cryptocurrency exchange, which is more than just a moral victory for the exchanges roughly 1 million individual investors. While not locked in yet, things appear to be on track for these investors to take a more favorable tax position as SBFs fate continues to unravel.
What kinds of losses can FTX investors claim on their taxes?
Earlier this fall, it appeared that assets lost in the FTX collapse would be considered a capital loss under the United States tax code for the tax year 2022. This capital loss can be used to offset capital gains. But in a year in which the crypto market took a beating as a whole, most investors will not have capital gains to offset in 2022.
A capital loss can also be used to offset ordinary income, such as money earned from a business or job up to $3,000 per year. The loss is carried forward indefinitely, but if your loss in the FTX collapse was substantial, it could take quite a while to claim all of it.
Related: Biden is hiring 87,000 new IRS agents and theyre coming for you.
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