In this clip from "The Future of Fintech" on Motley Fool Live, recorded on Feb. 10, Motley Fool contributors Matt Frankel and Jason Hall talk about what investors need to account for and claim with their cryptocurrency gains and losses and discuss the headaches it can create when it comes to accounting.


Matt Frankel: Can you take a loss on crypto? Yes, you absolutely can. If you spend $2,000 on Bitcoin (BTC -0.94%) and you sell it for $1,000, you can absolutely take that loss to the extent that you're allowed to do so. Generally, capital losses are used to first offset capital gains at the same time. If that is a short-term capital loss and you have short-term capital gains, you can use it to cancel it out. I think the annual limit is still beyond offsetting gains. I think the annual limit is still $3,000 that you can use capital losses to offset each year up to $3,000 of loss and then anything above that, you can carry it over to the next year. But yes, if you bought Bitcoin at the peak, for example, and sold it very recently toward the end of 2021 at a loss, you can absolutely use those losses against other gains or, in some cases, against other income.

Jason Hall: For transactions too. If you bought $500 worth of Bitcoin, the price of Bitcoin fell and you use it to buy $100 worth of goods because that's all your Bitcoin was worth at that point, you still lost $400. It works the same way. It's not going to be a lot of fun for a lot of people that have been transactional with crypto. Here's the other thing too. If it's just that you're trading it, it's the same thing if you're a day trader. You have tons of transactions, lots of cost basis you're measuring, and lots of realized gains and losses. It's going to be the same thing.

Frankel: It could totally be an accounting nightmare, especially if you bought your Bitcoin at several different times. If you buy Bitcoin once and then use it to live off of for like a year, it's better than if you're buying or you're getting paid in Bitcoin once a week, and have to figure out what the value is at the time and things like that. There's a lot that it could be an accounting nightmare for very quickly.