I’m a licensed CPA in the US. If you need help navigating the tax implications of the $UST $LUNA and overall #crypto / #stock market crashes, comment here or DM me. No charge.

I don’t have a large network here so please retweet if you think this is valuable to the community. 💛
$UST $LUNA Tax Implications 🧵. Comments & DMs open.

Possible scenarios:

1) Holding $UST $LUNA & #terra tokens in underwater positions
2) Sold $UST for losses
3) Sold $LUNA / #terra tokens for losses
4) Liquidated on leveraged positions
5) Lost entire net worth via above
1) If you're holding spot/staking/LP positions of $UST, $LUNA, & #terra tokens, your losses are unrealized 'til you dispose of the tokens. URL's cannot be deducted on your 2022 return or used to offset 2022 realized cap. gains, they must become realized losses via taxable event.
1b) Options for Unrealized Losses (URL's):
-wait for the dust to settle
-realize losses by selling/otherwise disposing of tokens
2) UST is a separate asset from USD & creates capital gains/losses (CG's/CL's) when swapped above/below peg.

If you've sold $UST <$1 for a loss on DEX's/CEX's that were off-peg, it is a capital loss (CL). It's *not* a CL if you swapped $UST on #Terra Station itself...(cont.)
2b) as peg was not lost on-chain. Individual #Terra DEX's may differ due to liquidity considerations - I don't know every DEX's situation.
2c) Capital losses (CL's) are deductible up to the lesser of $3,000 or the CL that's in excess of your capital gains (CGs) for the tax year. CGs/Ls should be reported on a transaction-by-transaction basis via IRS Form 8949

CG/L = Proceeds Received - Cost Basis of Asset Disposed
2d) Example: If you rec'd $100 of $UST staking rewards & sold that $UST on a CEX for $0.60/UST, you'd report a CL of $40 for that transaction ($60 Proceeds - $100 Cost Basis = $40 CL). (Note: you'd also report "Other Income" of $100, but that's not directly offset by this loss)
2e) Ex. cont.: Let's say your $40 loss above is your only CG/CL for the year. Your final result would be a deduction to your taxable income of $40, b/c this is the lesser of $3,000 or your capital losses in excess of your capital gains for the year.
2f) CG/L calculation gets tricky when you have hundreds or thousands of inflow/outflow transactions, especially between multiple wallets.

**Moving crypto between wallets you own is not a taxable event**
2g) There are different methods for calculating your cost basis: FIFO, LIFO, HIFO, & moving average are common. You must be consistent with whichever one you pick. Posting resources for these methods below.
2h) At this point it's important to clarify when you need to calculate a capital gain/loss. CG's/CL's occur whenever an asset is disposed of.

Transaction types include: Sales, Swaps, Conversions, Liquidations, Burning Tokens, Theft, Gifts & Donations
2i) Another variable: the length of time you held the asset before disposal determines the exact treatment of the capital gain/loss. I'm going to assume most people have held their #terra assets for less than 1 year & are in the "short-term capital loss" category
3) If you sold/swapped $LUNA or #terra ecosystem tokens for less than the value you received/purchased them for, it is a capital loss. The rules & examples above are exactly the same as if you sold $UST for a loss, just substitute $UST with the asset you sold.
3b) Note: Transaction fees are not taxable events, & you do not report capital gains/capital losses for transaction fees. Instead, transaction fees are added to your cost basis for the respective asset & indirectly help reduce CG's.
4) If your @anchor_protocol collateral was liquidated, it is a capital loss. You will report the liquidation event on IRS Form 8949, where CG/CL = Proceeds - Cost Basis of Collateral Lost.

Note: The amount you borrowed from Anchor initially is not considered taxable income.
@anchor_protocol 4b) Important: There is a chance these liquidations fall into the realm of "Cancellation of Debt" & you may technically have Proceeds >$0.

I'm having trouble finding explicit guidance one way or the other. Will update this thread when I do.
@anchor_protocol 5) If you were liquidated for your entire life savings, first of all my heart deeply goes out to you. You'll follow the rules above based on your situation. You'll report "Other Income" for staking/LP rewards, & capital losses for sales/liquidations of tokens.
@anchor_protocol 5b) If #5 applies to you, you do the required calculations above, & you still have a capital gain for 2022, I'd recommend estimating the tax you will eventually have to pay & begin saving for that payment now.
@anchor_protocol 5c) Generally, short-term capital gains are taxed higher than long-term. It's a tiered rate based on income; highest tier is 37% rate for >$539K of short-term realized gains for 2022. I will post resources with tables of short- & long-term capital gains rates below.
@anchor_protocol 5d) If #5 applies to you, and after doing the above, you are left with an estimated taxable gain that you know you will not be able to afford by April 2023, please know that you'll be able to request a payment/installment plan from the IRS when the time comes. Resources below.
@anchor_protocol 5e) Even if you request an extension for your 2022 tax return, you are req'd to pay an est. tax payment to the IRS at the April 2023 deadline. If you're financially unable to, you can still apply for a payment/installment plan.
@anchor_protocol 5f) If you default on the IRS's payment plan, there are other considerations that depend on the IRS's judgment of your case. Since that is over a year out, for now just take a deep breath and know that you have time on your side to plan ahead. You got this.
@anchor_protocol Resources: I am currently compiling reputable links to resources for all of the above factors. Want to be diligent with this and will post shortly.
Appreciate everyone's patience as I work through replying to DM's/questions in the comments. Thankful to be able to provide value in this insane time.

Link to $UST $LUNA tax implication info 🧵:
@anchor_protocol $UST $LUNA #Terra Tax Implications Resources:

Appreciate everyone's patience as I distilled a list of key resources for the info I've presented in this thread. Again DM's are open, will work through everyone's questions & situations as timely as I can.
@anchor_protocol Resources for treatment of unrealized AND realized capital gains & losses (CG's/L's):
Good ol' Investopedia: investopedia.com/ask/answers/04…
Good ol' Investopedia x2: investopedia.com/articles/inves…
IRS Summary of CG's/L's: irs.gov/newsroom/helpf…
...(cont.)...
@anchor_protocol Resources for unrealized & realized CG's/L's cont.:
IRS Expanded Summary of CG's/L's: irs.gov/taxtopics/tc409
IRS Treatment of Property Disposal (long but quality read): irs.gov/publications/p…
@anchor_protocol Resources for calc'ing Proceeds (for CG's/L's):

Honestly couldn't find quality crypto-focused links on this. Simple summary:
Proceeds = Qty Sold/Disposed * market $/unit of the asset at the time it was disposed of

Market Close/Open/Low/High/Avg Price all OK, just be consistent
@anchor_protocol Resources for calculating an asset's Cost Basis (to help calc. CG's/L's):
Crypto-Specific Info & Examples: coinledger.io/blog/crypto-co…
Basic Investopedia Help: investopedia.com/terms/c/costba…
Schwab Cost Basis Help: schwab.com/resource-cente…
...(cont.)...
@anchor_protocol Resources for calc'ing an asset's Cost Basis (cont.):
IRS Full Explanation of Asset Basis: irs.gov/publications/p…

Consistency is key for whatever method you choose. If you need an example for a specific method, comment or DM me & I'll provide one
@anchor_protocol Resources for tax treatment of liquidated capital:

Liquidation events effectively sell your collateral to repay your debt. You may feel like you receive nothing from this, but you actually receive "income" via cancellation of debt.

...(cont.)...
@anchor_protocol Resources for treatment of liquidations (cont.):

For liquidations, you still report a CL on the sale of your collateral. However, Proceeds = Value of Debt Cancelled, not $0.

This sucks but it's my best prof. judgment as a CPA.
IRS Info on Cancelled Debt: irs.gov/taxtopics/tc431
@anchor_protocol Resources for IRS capital gains tax rates:
IRS Info on Cap. Gains Rates: irs.gov/taxtopics/tc409
Concise Table of Short-Term Rates: smartasset.com/investing/shor…
Concise Table of Long-Term Rates: bankrate.com/investing/long….
@anchor_protocol Resources on Estimated Tax Payments & Plans:
IRS Estimated Tax Info: irs.gov/businesses/sma…
IRS Payment Plan Info: irs.gov/newsroom/what-…
IRS Payment Plan FAQ: irs.gov/payments/payme…?
@anchor_protocol IRS Forms Resources:

IRS Form 8949 (the most important one for us, you report all sales/disposals here): irs.gov/pub/irs-pdf/f8…

IRS Schedule D: irs.gov/pub/irs-pdf/f1…
IRS Form 1040: irs.gov/pub/irs-pdf/f1…
IRS Form 8453 (needed to mail in Form 8949): irs.gov/pub/irs-pdf/f8…
Gathering this info & reading everyones DM's has stirred deep emotions in me. The pain everyone feels right now is terrible. I hope this thread helps you gain some clarity on your path forward. Try to take some deep breaths, & know that you have time to plan. You will be okay. 💛
Update to this section: Based on my best professional judgment, liquidations of collateral are capital losses with income from cancellation of debt. See these resources:
After more research, I want to add clarity to the topic of liquidation tax issues:
When your collateral is liquidated, you do not report any ordinary income. The initial loan isn't income & you do not have ordinary income via debt cancellation. However you DO report a capital G/L
When you calc. your capital gain/loss from liquidation, the formula is the same as stated in this 🧵. Your "Proceeds"=the value of your loan that was "repaid" via liquidation. This is b/c you're effectively keeping the initial $UST you borrowed, even if it may not feel like it
Collateral liquidation tax example:
-Loan = $1500
-Collateral Value @ Liquidation = $1700 (1 ETH)
-Cost Basis of Collateral = $3600 (1 ETH)
-Liquidation occurs

...(cont.)...
Liquidation tax example cont.:
-You do not report ordinary income of $1500 (you effectively swapped 1 ETH for the initial loan amt.)
-You report a capital loss (CL), where:
CL=Proceeds-Cost Basis
CL=$1500 (you kept the loan amt) - $3600 (amt you paid for the collateral) = -$2100
This capital loss is reported on IRS Form 8949. You'll report it as either short- (<12 months) or long-term based on how long you held the collateral that was liquidated.

IRS Forms Resources:
Cost Basis Calculation Resources:

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