Celsius tax refund in BTC and ETH

[Luca]

I have a question and I need some advice regarding the Tax treatment for the Celsius Network situation.

As you know, Celsius emerged from Chapter 11 at the beginning of 2024 and they started to return to the creditors part of the cripto locked in their platform. They are returning the funds in the form of BTC and ETH despite the different coins I have in the account of the platform.

For my crypto tax calculation, I am using for many years already the KOINLY platform connected via API to all my wallets/exchanges.

In those years, I kept the coins balance aligned with the celsius account (via API) and I never declared any losses, because I was waiting to understand the end of this long story.

Now that I start to receive some funds back, as you can imagine I have multiple question regarding tax treatment:

1)- How do I treat the deposit of BTC and ETH in my wallets if I never had BTC and ETH in my Celsius account ? Those are deposits which are not income because it is a refund of part of the coins which I transferred originally in the Celsius platform

2)- Once I have received the crypto distribution from Celsius, how do I align in KOINLY the balance of the coins I still have in Celsius which I know, I will never get back.

3)- Is there any opportunity for the delta amount to declare it as loss ?

The points for me to understand are not only the tax treatment of my refunds but also how to align the balance of each coin to zero without generating any capital gains and possibly to declare the real loss.

Let me know if you can provide me with any advice and/or any documentation which can address those questions.

[pacrat007]

As I understand it from reading and watching videos (see latest here: https://youtu.be/gvCdFKnaWAs?si=YOwTokEBsRdcTs_Q), those coins need to be treated as sold for the amount that the BTC and ETH are worth at time of deposit of the claim. So it could result in a loss, depending on the original cost basis of those coins compared to the value of the BTC and ETH you received. Or it could result in a gain.

Mine is a little more clear cut because I had ETH and BTC in Celsius and they paid me less than I had. I also had other coins that I can declare as a loss because they only gave me back partial ETH and BTC, so those other coins are definitely lost.

In your case, it all comes down to original cost basis and whether you have a loss or gain because you need to treat it as changing one type of coin for another. You can’t get hung up on what your Celsius value shows because that is reporting unrealized gains, which do not equate to a loss/gain until you actually sell or trade.

It sucks! It is super confusing. It makes you not want to be in crypto at all. At least stocks are reported and tracked by your brokerage. Having to pay for a service like Koinly that doesn’t even track everything and is more hands on is just not worth the aggravation. On top of the Celsius mess, they transferred the claim to PayPal, that as I am finding out, Koinly does not interface with, so now I have to input data manually. At the end of the day I’d rather take a hit than be wrong on my taxes. We’ll see what happens. Since the claim was deposited in 2024, we have a whole year to figure it out.

[Ali_Koinly]

This is totally down to you. You must decide what is compliant for your tax authority, and represent it in Koinly.

For example, you could create manual withdrawals of all the assets you had in Celsius, and tag them as Lost. This doesn’t realize the loss directly, instead simply sidelines the transactions for you to try and claim via an accountant or tax office.

Then just treat the new reimbursed tokens as they are on the day they get deposited to you. (i.e they will be worth the market value on the day received).

If you want to realize the loss in Koinly, you would need to create the manual withdrawals as usual, but don’t tag as LOST. Instead, look for the “change worth” option, and set this to 0.

There is another method as well, where you simply transfer the cost and acquisition data of the old assets, to the new assets. For example you had 1BTC, now you have 0.5 BTC - you can apply the original 1 BTC cost to the new 0.5BTC, so that when you go on to sell it, you can realize a loss that way. If you want me to show you how, just let me know!

In short, you can implement pretty much any logic to Koinly, but you are responsible for ensuring it’s correct

[kodakasta]

I would like to have a guide or explanation on transferring the cost and acquisition data of the old assets, to the new ones, please. It would be helpful. Thank you.

[Ali_Koinly]

@MTZ Click Edit on the Deposit of the imbursement in Coinbase,

In this panel, at the top change the transaction from DEPOSIT > Trade

Then select NULL which exists in the Celsius wallet - do you follow?

If not, please open a support ticket so we can take a look.

Also we provide a more detailed way to handle it here - https://support.koinly.io/hc/en-us/articles/12675017906844-Chapter-11-Reimbursements-Celsius-Voyager-Mt-Gox

[MTZ]

@Ali_Koinly Thanks, it’s clear now and it seems everything has converted correctly.

[sql24]

Can you show us how to transfer the cost of the old to the new assets? Thanks

[Ali_Koinly]

Hey, @kodakasta @sql24

To achieve this, you must do the following you need to create some manual transactions involving the NULL placeholder token.

You will see in the example, that my initial balance prior to bankruptcy was 1 BTC, and then I was given 0.5 BTC as a reimbursement on 1 March 2024.

See as I did on the first line at 1 March, 00:30, I traded the 1 BTC > NULL, then labelled as SWAP - this transfers the cost basis and acquisition date, of the 1 BTC, to the NULL token.

I then create another trade, this time with NULL > 0.5 BTC, and tag it as SWAP, to transfer the cost of the NULL token, to the new BTC amount.

You can see in the final line, that the cost-basis of the 1 BTC was passed to the 0.5 BTC

I hope it makes sense!

[MTZ]

Hello @Ali_Koinly,

This mostly makes sense but there is one thing I’m not sure I understand correctly. I received my reimbursement in my Coinbase wallet I had from before that was already connected to Koinly and those transactions were fetched during wallet synchronization and the amounts are currently being viewed effectively as additional coins. How does that integrate in the example you’ve provided?

Thank you in advance!

[Ali_Koinly]

@MTZ You just need to select the Coinbase wallet in the Edit transaction panel, this will then make it an exchange of NULL from Celsius wallet > X asset in Coinbase.

In short, its not going to cause problems if you received it in another wallet.

[MTZ]

@Ali_Koinly Sorry, I still don’t follow. Which transaction are you referring to? The actual transaction of the reimbursement I received to the Coinbase wallet or the second manual transaction (from your example - 1 NULL => + 0.5 BTC)?

[Dom_Murphy]

The problem I have is I had 2 different tokens AVAX & LINK and in the payout received BTC and ETH. I considered splitting the payout amounts by percentage and then reallocating those back to the original tokens to determine an accurate(?) loss per token.

Is possible but seems complicated.

Instead, I am wondering if I could use the example above and convert the AVAX and LINK 1:1 for NULL and mark that as a value of zero, incurring a complete loss. And then add the new BTC and ETH and label that as an Airdrop or Other Income marking the value based on their worth of at the moment of receipt.

This would seem to be correct if I consider what happened.

THX