Turning Bitcoin Losses into Tax Advantages: A Legal Strategy Explained
Many Bitcoin and cryptocurrency traders view buying an asset before a market downturn as a trading failure. However, in Brazil, selling at a loss can be a smart tax decision.
According to accountant Ana Paula Rabello, from Declarando Bitcoin, this strategy is available for investors who understand the rules and can benefit even from unsuccessful trades.
How to Leverage Losses
Traders should know that they can generate loss credits only by using foreign cryptocurrency exchanges. Brazilian exchanges are excluded because the strategy involves the Offshore Law for foreign companies.
“It’s a legal, viable, and very promising strategy to pay less tax,” Rabello states.
The Legal Framework
Brazilian law equates “virtual assets, digital wallets, or current accounts with income” to foreign financial investments. This subjects all annual gains from these operations to a single 15% tax rate in the Annual Adjustment Declaration (DAA) starting from the 2024 base year.
Rabello explains that Article 9 of the legislation is key.
When an investor realizes (sells or liquidates) a cryptocurrency at a loss on an exchange outside Brazil, this loss, properly documented and converted to Brazilian Reais using the PTAX exchange rate on the day of the transaction, can be deducted from gains obtained from other cryptocurrencies or any other foreign financial investment within the same calendar year.
The accountant explains that the deduction is made directly in the “Income from foreign financial investments” section of the Annual Adjustment Declaration (DAA) before applying the 15% tax rate.
Timing Doesn’t Matter
Many investors wonder if losses can only offset profits earned earlier in the same year. However, Ana Paula Rabello clarifies that the timing is irrelevant.
“You may have realized a profit first or a loss first, it doesn’t matter, because it was within the same year. And this year for tax purposes abroad is from January 1st to December 31st,” the expert reminds.
Ana Paula continues to explain technical details and strategies to avoid unnecessary taxes for Brazilian investors, as many are still unaware of the nuances of the rules.
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