Loss allocations
Loss settlements: How does it work?
Loss settlements — An overview of the experts from Kryptoanwalt.de
Why losses are so important in the crypto sector
Crypto markets are volatile — gains and losses are often close together. If losses are recorded correctly for tax purposes, they can be offset against other taxable gains and reduce the tax burden. However, there are strict legal rules that are regularly underestimated in practice.
Losses in private sales transactions
Losses from trading in cryptocurrencies in private assets regularly fall under Section 23 EStG and can only be offset to a limited extent. In principle, offsetting is only possible with profits from other private sale transactions in the same year. There is expressly no provision for offsetting income from employment or capital income in accordance with Section 20 EStG.
The three central mechanisms
Loss settlement in the same year
Within the investment period, losses are automatically offset against gains from private sale transactions — e.g. losses from one coin against gains from another.
loss carryback
Unused losses can be carried back to the previous year to a limited extent and offset against corresponding profits.
Loss carryforward
In addition, remaining losses are determined separately (Section 10d EStG) and offset against gains from private sale transactions in subsequent years. They are not lost, but have a delayed effect.
Typical stumbling blocks
- Losses are not explained at all because investors assume that “only profits” are relevant — and are thus giving away a real tax advantage.
- Losses from wallet thefts, hacks or exchange bankruptcies are treated as tax deductible on a lump sum basis without the strict requirements of the case law being met.
- The loss assessment for subsequent years is missed, meaning that losses in later years can no longer be taken into account.
- In the case of commercial trade, losses are wrongly offset in accordance with private wealth rules.
Losses in commercial crypto trading
There are different rules for commercial activity: Losses from business assets are generally offset against other commercial income and are subject to general loss deduction in accordance with Section 10d EStG. Trading companies, such as a trading GmbH, offer additional design options — but also their own limits, such as minimum taxation.
Special features of “final” losses
Whether and when final losses — such as the total failure of a token, a rug pull or insolvencies — are recognized for tax purposes is disputed. Case law regularly requires objectifiable proof that economic recovery is virtually ruled out. Especially in these cases, an individual legal review is worthwhile before losses are included in the tax return.
Would you like to use losses in a legally secure manner?
Conclusion
Loss offsetting is an effective but rule-based instrument. Anyone active in crypto trading should document losses just as carefully as profits — and make the correct legal classification. In this way, tax advantages can be secured without building vulnerable structures.
This information is intended as general guidelines and cannot replace individual advice from our experts. The legal and tax treatment may vary depending on your specific situation and current regulations. It is highly recommended that you contact our lawyers to clarify your personal situation and meet legal requirements.