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Losses can only be taken on your initial investment amount if you have Bitcoins in MtGox. This means that if you invested $10k a year back, and your Bitcoins ar

Losses can only be taken on your initial investment amount if you have Bitcoins in MtGox. This means that if you invested $10k a year back, and your Bitcoins are now worth $1000k, you can only take $10k in losses. Luckily I have realized my gains which means I can deduct $3k every year in losses with infinite rollover.

steven2012 13y ago
I believe your understanding if the situation is flawed, if you are a US citizen. The $3000 per year applies to capital losses. You did not suffer a capital loss. You suffered a loss due to bank insolvency. If you realized your gains in 2013, you actually owe taxes on $500,000 for your 2013 taxes, which is roughly $250k. I believe your losses due to bank insolvency will apply to your income for 2014. But you may be on the hook for $250,000 in income taxes this year. But it probably won't offset your tax liability from 2013. And the state of NYC subpoenaed MtGox's records so they may share this with the IRS. I would consult a CPA if I were you, you could have a huge tax liability with no adequate way to offset it.
- patio11 13y ago
  Yep, talk to a CPA. One key issue is you may not have a capital loss, but rather a casualty, which by my read of the flowchart becomes a miscellaneous itemized deduction. Those are limited to 2% of MAGI and I don't believe they carry over. Also, there is a hard cap at $20k for lost deposits. See publication 547. It may be to your advantage to file it under a loss to personal property (form 4648) - the math isn't straightforward for me to work out. Talk to a CPA. This is the sort of thing they live for.
  - wtvanhest 13y ago
    It may depend on why the exchange went insolvent. If it is not a technical problem, and is rather a Ponzi Scheme, the tax implications may be much different since there are IRS rules that handle Ponzi Schemes. Additionally, those that gained profits in the exchange may be required to pay back those profits to victims through clawback lawsuits+. This IRS link below is a brief overview of how victims of Ponzi Schemes are treated. The most important piece of information is that there is a real chance of a clawback for the people who withdrew and currently think they made money. http://www.irs.gov/uac/Help-for-Victims-of-Ponzi-Investment-Schemes http://www.irs.gov/uac/Help-for-Victims-of-Ponzi-Investment-... I don't have time to read these documents this morning, but I do know that the people who received returns from Madoff are now the focus of lawsuits. Here is a Forbes article on the subject, there are plenty more you can read out there as well: http://www.forbes.com/sites/jordanmaglich/2012/10/23/ponzi-scheme-victims-may-owe-triple-damages-for-usury-in-clawback-lawsuits-a-new-tool-in-ponzi-scheme-litigation/ http://www.forbes.com/sites/jordanmaglich/2012/10/23/ponzi-s... Here is one example of a hospital having to pay a Clawback. http://www.jewishpress.com/news/breaking-news/hadassah-doctors-strike-over-hospital-deficit-fallout/2014/02/05/ http://www.jewishpress.com/news/breaking-news/hadassah-docto... +My guess is that the clawback lawsuits would yield very little real money since much of the value of Bitcoined gained was due to price appreciation which may keep lawsuits against those who gained fairly minimal since there isn't much money for lawyers to sue for in complex litigation.
    - zAy0LfpBZLC8mAC 13y ago
      Noone was promising any returns, so how could this possibly be a ponzi scheme?
      - deleted 13y ago
        [deleted]
      - gamblor956 13y ago
        A Ponzi Scheme is legally defined as a fraudulent investment operation that pays earlier investors returns out of the investments of subsequent investors. A promise of returns is not necessary.
        zAy0LfpBZLC8mAC 13y ago
        Well, and how is "give us your money and you'll later get it back, just minus some fees" possibly an investment operation, be it fraudulent or not? I mean, where did MtGox ever suggest they would pay any returns, let alone where did they ever pay returns?
        wtvanhest 13y ago
        You bring up an interesting point. I reviewed a wiki list of Ponzi schemes and assuming that is an exhaustive list I have to agree with you that the generally accepted definition is that you must say you are doing something with the money to benefit the investors for it to be a 'Ponzi Scheme'. http://en.wikipedia.org/wiki/List_of_Ponzi_schemes http://en.wikipedia.org/wiki/List_of_Ponzi_schemes The fact that it doesn't fit the wiki or generally accepted definition of a Ponzi Scheme does not rule out the possibility that it still may be considered one but after spending some more time considering it, it does not look like a true Ponzi Scheme, even if the CEO did directly steal the money and use new money to pay old BTC buyers.
        zAy0LfpBZLC8mAC 13y ago
        Well, what pretty much rules out that MtGox will be considered a ponzi scheme is that if it were, "ponzi scheme" would essentially be a synonym for "fraud". Suppose MtGox wasn't a bitcoin exchange, but rather sold cars, which had to be ordered and paid for in advance. Now, suppose further that the CEO "stole" cars from the company and then bought new ones using the money from new customers when he needed to deliver a car to one of the earlier customers. That's just plain old fraud, not a ponzi scheme, and it doesn't become a ponzi scheme just because it's money instead of cars - and in particular, you as an earlier customer certainly are not liable for the losses of later customers. edit: I mean, MtGox under the assumption that the loss was not due to a technical problem, if it way due to a technical problem, it's obviously not a ponzi scheme anyway.
- mtgoxloser 13y ago
  I am not clear with taxes, but I will go and consult with a CPA. Fortunately I did not keep everything in MtGox. If it turns out that I do owe $250k in taxes, I won't be in trouble. Thanks.
  - nwh 13y ago
    > If it turns out that I do owe $250k in taxes, I won't be in trouble. It sounds like you have little to complain about really. it sucks you lost half a million dollars, but if you're not upset about the possibility of losing a quarter more I imagine you're probably set for life as it is.
    - randallsquared 13y ago
      He initially posted a comment including > [...] I really do feel sorry for Mark Karpeles. So, it didn't seem that complaining was the main point.
  - mtgoxwinner 13y ago
    Please, tell us more about how wealthy you are.
- arethuza 13y ago
  Lets see if I understand this (I am not in the US) - the bitcoins count as an asset, you sell these bitcoins for dollars at MtGox and at this point the tax is due regardless of whether you actually get the dollars out of MtGox? So any time between you selling bitcoins and actually getting the cleared funds out of an exchange leaves you with the risk of a fairly serious tax liability if the exchange can't actually give you the kind of currency you can pay tax bills with... [I've had very close calls with seemingly small matters introducing potentially horrific tax liabilities so I am a bit oversensitive to these things!]
  - patio11 13y ago
    Bingo. Works the same way for shares. Unless you're investing in a tax-advantaged account, if you have a $10k basis in a stock/fund and liquidate it for $20k, you just realized a $10k gain regardless of what subsequently happens to that $20k. Park it at your brokerage, plow it into a new stock, withdraw it and buy a vat of chocolate to go skinny dipping in, the IRS doesn't care, but it will have its cut. Poorly timed realizations of capital gains used to routinely bankrupt people in the startup community, which is why that 83(b) election paperwork is actually really important.
    - mbesto 13y ago
      > 83(b) election Just a friendly reminder if someone is reading this - you have 30 days to claim 83(b) after you offer yourself shares in your business, otherwise you'll be in a heap of legal/tax issues that can be quite painful (i.e. cost a lot). Make sure you bring this up with your accountant/lawyer.
  - rayiner 13y ago
    That's more or less the rule: the gain is taxed when it is "realized" which is roughly when it becomes "yours." It doesn't actually have to be cash in your hand (otherwise it would be quite easy to get around tax laws simply by trading assets on accounts without taking cash out). See: http://en.wikipedia.org/wiki/Realization_%28tax%29 http://en.wikipedia.org/wiki/Realization_%28tax%29.
- deleted 13y ago
  [deleted]

steven2012 13y ago

I believe your understanding if the situation is flawed, if you are a US citizen. The $3000 per year applies to capital losses. You did not suffer a capital loss. You suffered a loss due to bank insolvency. If you realized your gains in 2013, you actually owe taxes on $500,000 for your 2013 taxes, which is roughly $250k. I believe your losses due to bank insolvency will apply to your income for 2014. But you may be on the hook for $250,000 in income taxes this year. But it probably won't offset your tax liability from 2013. And the state of NYC subpoenaed MtGox's records so they may share this with the IRS. I would consult a CPA if I were you, you could have a huge tax liability with no adequate way to offset it.

patio11 13y ago
Yep, talk to a CPA. One key issue is you may not have a capital loss, but rather a casualty, which by my read of the flowchart becomes a miscellaneous itemized deduction. Those are limited to 2% of MAGI and I don't believe they carry over. Also, there is a hard cap at $20k for lost deposits. See publication 547. It may be to your advantage to file it under a loss to personal property (form 4648) - the math isn't straightforward for me to work out. Talk to a CPA. This is the sort of thing they live for.
- wtvanhest 13y ago
  It may depend on why the exchange went insolvent. If it is not a technical problem, and is rather a Ponzi Scheme, the tax implications may be much different since there are IRS rules that handle Ponzi Schemes. Additionally, those that gained profits in the exchange may be required to pay back those profits to victims through clawback lawsuits+. This IRS link below is a brief overview of how victims of Ponzi Schemes are treated. The most important piece of information is that there is a real chance of a clawback for the people who withdrew and currently think they made money. http://www.irs.gov/uac/Help-for-Victims-of-Ponzi-Investment-Schemes http://www.irs.gov/uac/Help-for-Victims-of-Ponzi-Investment-... I don't have time to read these documents this morning, but I do know that the people who received returns from Madoff are now the focus of lawsuits. Here is a Forbes article on the subject, there are plenty more you can read out there as well: http://www.forbes.com/sites/jordanmaglich/2012/10/23/ponzi-scheme-victims-may-owe-triple-damages-for-usury-in-clawback-lawsuits-a-new-tool-in-ponzi-scheme-litigation/ http://www.forbes.com/sites/jordanmaglich/2012/10/23/ponzi-s... Here is one example of a hospital having to pay a Clawback. http://www.jewishpress.com/news/breaking-news/hadassah-doctors-strike-over-hospital-deficit-fallout/2014/02/05/ http://www.jewishpress.com/news/breaking-news/hadassah-docto... +My guess is that the clawback lawsuits would yield very little real money since much of the value of Bitcoined gained was due to price appreciation which may keep lawsuits against those who gained fairly minimal since there isn't much money for lawyers to sue for in complex litigation.
  - zAy0LfpBZLC8mAC 13y ago
    Noone was promising any returns, so how could this possibly be a ponzi scheme?
    - deleted 13y ago
      [deleted]
    - gamblor956 13y ago
      A Ponzi Scheme is legally defined as a fraudulent investment operation that pays earlier investors returns out of the investments of subsequent investors. A promise of returns is not necessary.
      - zAy0LfpBZLC8mAC 13y ago
        Well, and how is "give us your money and you'll later get it back, just minus some fees" possibly an investment operation, be it fraudulent or not? I mean, where did MtGox ever suggest they would pay any returns, let alone where did they ever pay returns?
        wtvanhest 13y ago
        You bring up an interesting point. I reviewed a wiki list of Ponzi schemes and assuming that is an exhaustive list I have to agree with you that the generally accepted definition is that you must say you are doing something with the money to benefit the investors for it to be a 'Ponzi Scheme'. http://en.wikipedia.org/wiki/List_of_Ponzi_schemes http://en.wikipedia.org/wiki/List_of_Ponzi_schemes The fact that it doesn't fit the wiki or generally accepted definition of a Ponzi Scheme does not rule out the possibility that it still may be considered one but after spending some more time considering it, it does not look like a true Ponzi Scheme, even if the CEO did directly steal the money and use new money to pay old BTC buyers.
        zAy0LfpBZLC8mAC 13y ago
        Well, what pretty much rules out that MtGox will be considered a ponzi scheme is that if it were, "ponzi scheme" would essentially be a synonym for "fraud". Suppose MtGox wasn't a bitcoin exchange, but rather sold cars, which had to be ordered and paid for in advance. Now, suppose further that the CEO "stole" cars from the company and then bought new ones using the money from new customers when he needed to deliver a car to one of the earlier customers. That's just plain old fraud, not a ponzi scheme, and it doesn't become a ponzi scheme just because it's money instead of cars - and in particular, you as an earlier customer certainly are not liable for the losses of later customers. edit: I mean, MtGox under the assumption that the loss was not due to a technical problem, if it way due to a technical problem, it's obviously not a ponzi scheme anyway.
mtgoxloser 13y ago
I am not clear with taxes, but I will go and consult with a CPA. Fortunately I did not keep everything in MtGox. If it turns out that I do owe $250k in taxes, I won't be in trouble. Thanks.
- nwh 13y ago
  > If it turns out that I do owe $250k in taxes, I won't be in trouble. It sounds like you have little to complain about really. it sucks you lost half a million dollars, but if you're not upset about the possibility of losing a quarter more I imagine you're probably set for life as it is.
  - randallsquared 13y ago
    He initially posted a comment including > [...] I really do feel sorry for Mark Karpeles. So, it didn't seem that complaining was the main point.
- mtgoxwinner 13y ago
  Please, tell us more about how wealthy you are.
arethuza 13y ago
Lets see if I understand this (I am not in the US) - the bitcoins count as an asset, you sell these bitcoins for dollars at MtGox and at this point the tax is due regardless of whether you actually get the dollars out of MtGox? So any time between you selling bitcoins and actually getting the cleared funds out of an exchange leaves you with the risk of a fairly serious tax liability if the exchange can't actually give you the kind of currency you can pay tax bills with... [I've had very close calls with seemingly small matters introducing potentially horrific tax liabilities so I am a bit oversensitive to these things!]
- patio11 13y ago
  Bingo. Works the same way for shares. Unless you're investing in a tax-advantaged account, if you have a $10k basis in a stock/fund and liquidate it for $20k, you just realized a $10k gain regardless of what subsequently happens to that $20k. Park it at your brokerage, plow it into a new stock, withdraw it and buy a vat of chocolate to go skinny dipping in, the IRS doesn't care, but it will have its cut. Poorly timed realizations of capital gains used to routinely bankrupt people in the startup community, which is why that 83(b) election paperwork is actually really important.
  - mbesto 13y ago
    > 83(b) election Just a friendly reminder if someone is reading this - you have 30 days to claim 83(b) after you offer yourself shares in your business, otherwise you'll be in a heap of legal/tax issues that can be quite painful (i.e. cost a lot). Make sure you bring this up with your accountant/lawyer.
- rayiner 13y ago
  That's more or less the rule: the gain is taxed when it is "realized" which is roughly when it becomes "yours." It doesn't actually have to be cash in your hand (otherwise it would be quite easy to get around tax laws simply by trading assets on accounts without taking cash out). See: http://en.wikipedia.org/wiki/Realization_%28tax%29 http://en.wikipedia.org/wiki/Realization_%28tax%29.
deleted 13y ago
[deleted]