Crypto Tax Unrealised Gains And Unrealised Losses: Your Questions Answered

If you have invested in the stock market before, you’ve probably heard the terms “unrealised gains and losses” before, but do you know how important they are to understanding how you can maximise your investments? We are here to take a deep dive into looking at how you can track your unrealised gains and losses to achieve a more tax efficient crypto strategy.

Realised Gains Vs Unrealised Gains

To understand what “unrealised gains” are, it may be helpful to start by being aware of what “realised gains” means. To put it simply, a realised gain is how much the asset’s market value has increased from how it was at the time of purchase, which is realised at the point of sale.

So, unrealised gains are those that have been generated whilst the asset is still in possession of the investor and not yet sold. These can also be referred to as “running profits” or “paper profits”.

It’s important to note that unrealised losses do not affect your exact taxes. Though, crypto tax advisors would suggest that it is good to keep your unrealised gains and losses in mind to help you make informed decisions. 

How Can You Calculate Your Unrealised Gains And Losses?

Your unrealised gains only differ from your realised in that they just haven’t been sold yet, so the way we calculate these gains and losses are the same. To find out your profits, you simply need to work out the difference between your crypto’s current market value and its fair market value at the time of its purchase:

Current FMV – FMV at purchase time

This calculation will come out as either a positive or negative, where a positive outcome indicates that your investment is currently running at a gain and a negative outcome shows an unrealised loss.

Tracking Your Unrealised Losses

So, why is tracking your unrealised losses important in relation to your crypto tax? One consideration for making your crypto tax as efficient as possible is through offsetting your capital losses against your capital gains.

For those unfamiliar with this concept, the UK HMRC states that when you report your capital losses, the amount can be deducted from the gains that you make in the same tax year. These are your realised gains and losses. So, what should you do with these unrealised gains and losses?

It’s quite simple – by tracking these figures, you can make better informed decisions on what to do next with your crypto. For example, it may be that you have a huge capital gains tax on the horizon and you may be wondering how can you generate tactical capital losses that will be good enough to offset the upcoming tax?

By looking at your current unrealised losses, you can see if you have any assets that are underperforming and unlikely to improve. It may be a good idea to sell these underperforming assets in order to generate realised losses that you can use for offsetting gains tax. 

Another consideration is that tracking your unrealised losses helps you to track your asset’s volatility to give a better understanding of how it is performing. This can give you an idea of whether you should take action, or hold on to the assets that you have.

Looking For Extra Advice?

Do you still have more questions about unrealised gains and losses or perhaps you may want to know more about different tax efficient crypto strategies?

Speak to our team today and we can get you in touch with specialist crypto advisors who can advise you further.


More Posts

Need support With Crypto Tax Efficiency
Send Us A Message