As we all know on January 19, 2018 Bitconnect exited their lending platform and this caused a lot of investors to lose a lot of money. But I bet nobody has thought about the tax consequences for their 2018 tax return in the US. Bitconnect claims they are a lending platform. This means as investors, we are lending money to Bitconnect and in return receive interest and also eventually our principal back. The interest you received will be counted as interest income and will be taxed at ordinary income rates.
The next issue is Bitconnect shutdown their lending platform and this cause investors' loans to go down in value and are technically uncollectable. This is called a bad debt. This type of bad debt is considered a short-term capital loss and is claimed on Schedule D of the Form 1040. As such, it will first be matched with the capital gains on the Schedule D. Any remaining loss after matching against capital gains will then flow from the Schedule D to the front of the Form 1040, with a limit of $3000.00 per year ($1500.00 for married filing separately) in deductible capital losses. The balance will be carried forward to future years and reported as a carry forward on the next year's Schedule D.
If you have any other questions about taxes dealing with cyrptocurrencies, just leave a comment and I will answer as soon as possible.
On the bright side, losses are tax deductible.
Well to a certain degree
At least I take solace in knowing I can screw the government out of a few dollars.
It's not much, just hope you have capital gains so you can offset your losses from Bitconnect
How can I record this Bitconnect loss in a tax software such as TurboTax or Tax ACT? I have used Bitcoin.tax to generate my transaction list from the exchanges. I still hold my BCC that Bitconnect paid out.
i haven't used turbo tax but it should have a capital gains tab to put this info in and I would treat as a sell. So you would take your basis in the coin for example you bought 200 coins at $200= $40,000 basis or cost. Then I would go with what the price is today $5 * 200 coins= $1,000 so your loss would be $39,000 but turbo tax prompt questions like what is your original cost and selling price and selling expense and I would just fill them in