Loss calculation, superficial loss

[krakatau]

@Mark_DesLauriers - since you are potentially more familiar with ACB w/ superficial loss than I am, I hope that you can assist with this question.
Of course, a clarification from the Koinly support team would be much appreciated.

I am almost done with my 2021 taxes, but I have a horribly high PNL. It is true that I had extreme gains at the beginning of the year, but afterwards I had losses, followed by some gains and even more losses.
In the end. I had a lower port value at the end of 2021 than on Jan 1.

QUESTION: Is it possible for the superficial loss to have stopped the recognition of losses most of the time I sold at a loss - should selling and rebuying be done for the same coin within 30 days?
Is it really possible for this to get me in a situation where my gains are close to $80k, but for the year I ended up with less than $30k?

How does it work without setting superficial loss - is it even worse? I.e. losses would not be recognized at all?? How does the taxman count loss? The same rules should apply as for the gains, just in reverse. Or is the tax system so crooked?

I am in a ridiculous situation where I would have to sell a third of my current port just to pay the taxes for the gains in 2021 that I have already lost. I’m surely quite nervous and I hope that I’m missing something big here.

Thanks in advance.

[BF79]

Exact same issue here… $17k in P&L for 2021, but my portfolio value as of today is only double what I owe in taxes (and I was pretty much flat on taxes before entering all my crypto stuff… Now I have to sell half my lot just to pay taxes…

That said, I’m sure the SLR doesn’t apply to me as I never sold and immediately rebought…

[Mark_DesLauriers]

Hi @krakatau, I don’t trade in and out of crypto very often so I don’t run into the superficial loss rule very often. Having said this, it does sound to me that there is something wrong with your situation where you have an extremely high P&L despite having a lower portfolio value at year end than you had at the beginning of the year.

While it is possible for the superficial loss rule (SLR) to have applied to many of your capital loss transactions because you purchased the same coins within 30 days before or within 30 days after the disposal transaction, there is a flip side to the SLR that should significantly reduce your capital gains when the market turns back up and you have profitable sales. This flip side is that every dollar of capital loss that you are denied is added to the ACB of the coins you repurchased that caused you to be denied the capital loss. This means that in the long run, the SLR should not really have a negative effect and result in an extraordinarily high P&L unless the market is in freefall and you never have any profitable trades. The denied losses on the losing trades should reduce the amount of gains on the winning trades on a dollar for dollar basis.

You need to check your loss trades when you have been denied a loss to see if the amount of denied loss is being added to the cost base of the coins you purchased within the 60 day period. This can be tricky because the ACB of your coins is calculated on an average cost basis.

One thing you can do is open a new “test” Koinly account where you can import transactions via CSV file for a specific short period of time to test that Koinly is applying the SLR properly. You can’t get tax reports but you can see what is happening after series of transaction with the SLR activated.

You can also try and look at the list of your capital gains transactions in your full Koinly tax report to see if the denied capital loss amounts are being added to the ACB of the coins you are still holding.

Bottom line is that the SLR should not be having a significant negative impact on your net amount of capital gains over the long haul. The SLR is not designed to be a deterrent to regular trading of stocks or crypto.

Below is a link to an RBC article that you may find helpful on the subject of the SLR. It should apply equally to stocks and crypto. Hope some of this helps.

https://ca.rbcwealthmanagement.com/documents/634020/2239538/The+Navigator+-+Superficial+Loss+Rules+2019.pdf/8f742280-c974-47f6-9065-f8633567121a

[krakatau]

Lots of info to digest - thank you.
A quick note though - you’ve indicated that you don’t trade in and out of crypto very often, probably referring to what SLR applies to. Just making sure that I don’t get you wrong:

• You are referring to trading crypto to crypto as well, right? As SLR applies not only to crypto to FIAT, but also crypto to crypto.

I believe that it applies to crypto to crypto trades as well, which is why we were discussing the example I gave.

[Mark_DesLauriers]

Yes. The SLR applies to any disposal of crypto be it a sale for fiat, a crypto for crypto trade, the purchase of an NFT or the use of crypto to pay transfer fees or other expenses. Any of these transactions will give rise to a capital gain or loss calculation for tax purposes.

[BF79]

Disregard. My P&L is awful, but I didn’t typically sell and rebuy a crypto/NFT which would trigger a SLR. I simply can’t figure out how my P&L can be so high, but I not have anything to show for it. Haha.