Post by niseag on Dec 25, 2014 5:39:42 GMT 4
This post was created for general guidance on matters of interest only, and does not constitute legal advice. You should not act upon the information contained in this publication without obtaining specific advice from a tax professional. No representation or warranty (expressed or implied) is given as to the accuracy or completeness of the information contained in this post, and I do not accept or assume any liability, responsibility or duty of care for any consequences of you or anyone else acting, or refraining to act, in reliance on the information contained in this post or for any decision based on it.
CIRCULAR 230 DISCLOSURE To ensure compliance with requirements imposed by the IRS, I inform you that any U.S. federal tax advice in this communication is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code or (ii) promoting, marketing, or recommending to another party any transaction or matter addressed herein.
THE AUTHOR Tyson Cross is a tax attorney licensed in California and Nevada. He represents individuals and businesses with tax issues related to Bitcoin and other cryptocurrencies , including tax return preparation, tax planning, and FinCEN compliance. He can be reached at Tel: +1 619-786-0641 or Email: tyson@BitcoinTaxSolutions.com. (this information is required by attorney advertising rules).
Topic 1: Losses
Beginning Assumption: This post deals only with "capital losses." If your bitcoin losses are characterized as "ordinary losses," then these rules wouldn't apply. However, very, very few people will have "ordinary losses" from bitcoin. Unless you qualify as a "day trader" (which is not easy to do) and have elected to use the mark to market method for determining your gains/losses, it's very likely that your bitcoin losses are "capital losses." If you're unsure, talk to a tax professional to determine whether your losses are ordinary or capital.
#1 Do capital losses offset capital gains?
Yes. We'll get more into the mechanics of calculating gains and losses below, but for now all that matters is that capital gains are determined on a net basis. This means that all your gains and losses for the year are added against each other to reach either a "net gain" or a "net loss." So, yes, losses do offset gains.
Example: Bob owns three bitcoins and sells all of them in 2014. He had a gain of $600 on coin #1, a gain of $400 on coin #2, and a loss of ($900) on coin #3. Bob has a net gain of $100 for the year.
#2 What about long-term vs. short-term? Do these apply to losses also?
Yes. This is where the mechanics of the calculation start to come into play. Remember that when calculating gain or loss, all gains and losses are sorted into either "short-term" or "long-term" depending on whether the underlying bitcoin was held for more than one year. So, this means that there are actually four categories of gains and losses: (1) short-term gains, (2) short-term losses, (3) long-term gains, and (4) long-term losses.
The short-term gains and short-term losses are added together to reach a net short-term gain or a net short-term loss.
The long-term gains and long-term losses are also added together to reach a net long-term gain or a net long-term loss.
Finally, the long-term and short-term gain/loss are added together to reach one final number: your "net capital gain or loss."
#3 So what does that even mean? Can long-term losses be used to offset short-term gains? Or visa-versa?
Yes. The above calculation boils down to one important point: If you end up with a net loss in one category, that loss will carryover and offset your gains in the other category. So, yes, long-term losses can be used to offset short-term gains.
Keep in mind that this is all handled by your tax preparation software, so if your head is spinning a little bit, don't worry about it. All you need to remember is that losses offset gains of the same character first, and then any excess will carryover to offset gains of the other character second.
Example: Bob sold 2 bitcoins in 2014 that he's owned for 2 years. He had a gain of $1,000 on this sale. Bob also sold 3 bitcoins that he's owned for 13 months. He had a loss of ($1,500) on this sale. Finally, Bob sold 1 bitcoin that he's owned for 9 months. He had a gain $750 on this sale.
Bob has a long-term loss of ($500). Bob has a short-term gain of $750. * *Bob will report a net capital gain of $250 on his tax return (characterized as short-term).
note: For the sake of simplicity, I'm going to purposely disregard the short-term/long-term distinction for the rest of this post since it has very little impact on the issue of losses and would unnecessarily complicate the examples.
#4 Can bitcoin losses offset gains from other types of assets?
Yes. Bitcoins are a capital asset (except in a few limited circumstances), and therefore gains and losses from bitcoins are mixed together with the gains and losses from other capital assets.
Example: Bob sold 2 bitcoins in 2014 for a total loss of ($1,000.) Bob also sold shares of stock in Apple Corporation for a gain of $600 and shares of stock in Netflix for a gain of $400.
Bob has zero capital gains in 2014. Note: Bob still needs to include a Schedule D with his tax return, which will show these transactions and the calculation of his $0 net capital gain.
#5 What happens if my losses exceed my gains?
If you had more losses than gains during the taxable year, then the above calculation will result in a "net capital loss." A net capital loss is reported on your tax return as a negative number.
However, there is a ($3,000) limitation on capital losses. No matter how big your capital loss ends up being, you can only use $3,000 of it on your tax return.
Example: Bob decided that he made a bad investment in bitcoins and decided to cash out entirely. He sells all of his bitcoins for a loss of ($12,000) at the end of the year. Bob also sold some shares of stock for a $2,000 gain earlier in the year.
When Bob calculates his capital gains for the year, he ends up with a ($10,000) net capital loss for the year. However, he can only take ($3,000) of the loss on his tax return. The remaining ($7,000) of losses are put on hold and again carried forward to future years.
#6 What do I do with carried losses in the future? Can I use them to offset future gains?
Yes. Any losses in excess of the $3,000 limitation are carried forward and included in the net gain calculation in future years. There is no limit to how long you carry your capital losses.
*Example: Bob has ($7,000) of carried losses from 2013. In 2014, Bob sold shares of stock for a gain of $7,000. *
Bob will include his carried losses of ($7,000) in the calculation of his net capital gain for 2014. So, Bob has zero capital gains for 2014. Remember: bitcoins are a capital asset, and therefore gains/losses are combined with other capital assets like shares of stock.
Suppose instead that Bob had carried losses of ($15,000) from last year. When Bob's carried losses are included in the calculation of his net capital gains, he'll end up with a capital loss of ($8,000). Bob can report ($3,000) of this loss on his tax return, and the remaining ($5,000) becomes a carried loss and will be carried forward once again.
#7 Can I carry losses backwards to earlier tax years?
Unfortunately, the answer is no. Capital losses can only be carried forward. So, for example, losses realized in 2014 from the price collapse in bitcoin cannot be used to offset gains in 2013 (when bitcoin hit all-time highs).
Topic #2: Wash Sales
#8 What is a Wash Sale?
A wash sale is a transaction where an investor sells stocks or securities for a loss, but then repurchases the same stocks or securities within 30 days. The investor gets to claim a capital loss for tax purposes, but he or she is in essentially the exact same economic position. The loss really only exists on paper, nothing else about the investors position has changed.
Wash sales are prohibited by Section 1091 of the Internal Revenue Code. If a transaction qualifies as a "wash sale," it is essentially disregarded and the investor is not allowed to use the loss it generated (I'm choosing to skip the mechanics of the wash sale rule and how exactly it disallows the loss for the sake of simplicity). This led to a lot of gamesmanship over the years to get around the rules, with the result that Section 1091 and the Regulations cover just about every possible trick you can imagine.
Example: Bob owns 100 shares of Apple stock. On May 1st, Bob sells 50 shares for a loss of ($500). Three weeks later on May 21st, Bob purchases 50 shares of Apple stock. This second purchase of Apple stock triggers the wash sale rule under Section 1091 and Bob will not be allowed to use the $500 loss when calculating his gain/loss at the end of the year.
Note that the rule also applies backwards. So, if Bob tried to get around the 30 day rule by buying the 50 shares of replacement stock ahead of time on April 15th, the wash sale rules would still apply.
#9 Do the wash sale rules apply to bitcoin?
Probably not. The wash sale rules under Section 1091 apply only to "shares of stock or securities." Therefore, they do not apply to bitcoins unless bitcoins (and virtual currencies in general) qualify as "shares of stock or securities." This qualification would seem highly unlikely. There's just really no argument that bitcoins are "shares of stock or securities." The definition for these terms (taken from Section 1236, for example) is "any share of stock in any corporation, certificate of stock or interest in any corporation, note, bond, debenture, or evidence of indebtedness, or any evidence of an interest in or right to subscribe to or purchase any of the foregoing." Bitcoins would not appear to meet this definition.
So, as it's currently written, it does not look like Section 1091 applies to bitcoins and other virtual currencies. That could change in the future of course, but for the moment it seems to be the case.
#10 So can I use a wash sale to generate losses on bitcoin?
Yes. If bitcoins do not qualify as "shares of stock or securities" under Section 1091, then the rules do not apply. This mean that you can sell bitcoins to realize a loss, and then buy them back again to preserve your investment. However, that's not the end of the story. The IRS can attack this transaction with the "economic substance" doctrine, discussed below.
Example: Bob has capital gains from the sale of stock in Apple. He also has some bitcoins that he purchased for $1,200 each last November, but are worth only $300 currently. In order to offset the gains on his shares of stock, Bob sells his bitcoins for a loss of $900 each. He immediately repurchases the same amount of bitcoin, thereby creating a tax loss but not actually giving up his investment in bitcoin.
#11 What is the Economic Substance Doctrine?
The "economic substance doctrine" is a doctrine in US tax law that says a transaction must have economic significance aside from it's tax effects. Basically, a transaction that does nothing else but generate tax benefit is invalid under this doctrine. The parties to the transaction must actually incur some economic benefit or suffer some economic loss in order for it to be recognized by the IRS. A transaction that does neither, but still manages to generate some kind of tax benefit, will be invalid under this doctrine. It's become a very powerful tool for the IRS in attacking tax shelters and the courts are generally pretty supportive of the doctrine.
Because a bitcoin wash sale leaves you in the same economic position, but has generated a tax loss for your benefit, I wouldn't be surprised to see the Economic Substance Doctrine used to invalidate wash sales of bitcoins that would otherwise avoid Section 1091.
Example: The IRS audit's Bob from the previous example and discovers that he sold bitcoins in order to generate a tax loss, and then immediately repurchased the same amount of coins just moments later. The IRS will claim the transaction lacked economic substance and will disallow the loss.
#12 Is it possible to generate tax losses without running afoul of the Economic Substance Doctrine?
It's possible, yes. There is a tried a true principle of the Economic Substance Doctrine under which a transaction has "economic substance" if it exposes the parties to "market risk." This is true even if the market risk doesn't end up doing anything to change the economic position of the parties. As long as the parties put their economic interests at risk, the transaction has economic significant apart from the tax benefits it created.
So, this means that you can avoid the economic substance doctrine by waiting to repurchase your bitcoins. This waiting period exposes you to market risk due to the fact that you might be forced to repurchase at a higher price, and therefore it adds economic substance to the transaction.
#13 How long should I wait to repurchase after selling my bitcoins for a loss? Unfortunately, there is no clear answer to this question. Traditionally, the amount of time required to pass in order for a transaction to gain "economic substance" depended on the volatility of the market. The more volatile, the less time was needed. And visa-versa.
It goes without saying that bitcoin is an extremely volatile asset, so we can probably safely assume that you do not need to wait very long. 30 days (which is the requirement under Section 1091 for wash sales of stocks and securities) is certainly long enough, but would essentially defeat the point. Conversely, waiting only a matter of minutes is almost as certainly not long enough.
So, where does the magic number lie? It's impossible to say for certain. One day is definitely on the low end and probably the shortest amount of time that you could conceivably get away with (but it would still be quite risky). I would tend to think something in the three to five day range is more appropriate, with a week or more being a safer choice for those who want to eliminate the risk of the economic substance doctrine as much as possible. At the end of the day, the decision is up to you -- just keep in mind that longer is better.
Example: Instead of immediately repurchasing the bitcoins he sold, Bob from the previous example waits five days to make the repurchase. In the mean time, the price of bitcoin fluctuates 5% each day, but ends up at almost the exact same price that he sold them. Bob repurchases the same amount of bitcoin at this price. If Bob were audited, he would have a strong argument that the transaction did not lack economic substance because he exposed himself to the market risk of bitcoin, regardless of the fact that he was able to repurchase at the same price five days later.
#14 Should I use wash sales to generate losses by the end of the year?
Maybe. Typically the strategy of "taking losses" is used to offset gains that you might've had on other investments during the year. In that case, using a wash sale to generate losses could help reduce your taxes considerably.
On the other hand, a wash sale essentially resets your cost basis and holding period. By that I mean you now own the bitcoin at the new purchase price and the new purchase date. So, you'll have to weigh the possibility of higher capital gains in the future, as well as the possibility of losing long-term status, against the current year tax savings.
Conclusion
At the end of the day, losses on bitcoins are treated just the same as losses on shares of stock, with one exception: the wash sale rules of Section 1091 do not apply. Regardless, a wash sale lacking economic substance can be invalidated by the IRS, so it's a good idea to wait at least a few of days before repurchasing.
source: www.reddit.com/r/Bitcoin/comments/2qar39/i_am_a_tax_attorney_here_are_my_answers_to_common/
CIRCULAR 230 DISCLOSURE To ensure compliance with requirements imposed by the IRS, I inform you that any U.S. federal tax advice in this communication is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code or (ii) promoting, marketing, or recommending to another party any transaction or matter addressed herein.
THE AUTHOR Tyson Cross is a tax attorney licensed in California and Nevada. He represents individuals and businesses with tax issues related to Bitcoin and other cryptocurrencies , including tax return preparation, tax planning, and FinCEN compliance. He can be reached at Tel: +1 619-786-0641 or Email: tyson@BitcoinTaxSolutions.com. (this information is required by attorney advertising rules).
Topic 1: Losses
Beginning Assumption: This post deals only with "capital losses." If your bitcoin losses are characterized as "ordinary losses," then these rules wouldn't apply. However, very, very few people will have "ordinary losses" from bitcoin. Unless you qualify as a "day trader" (which is not easy to do) and have elected to use the mark to market method for determining your gains/losses, it's very likely that your bitcoin losses are "capital losses." If you're unsure, talk to a tax professional to determine whether your losses are ordinary or capital.
#1 Do capital losses offset capital gains?
Yes. We'll get more into the mechanics of calculating gains and losses below, but for now all that matters is that capital gains are determined on a net basis. This means that all your gains and losses for the year are added against each other to reach either a "net gain" or a "net loss." So, yes, losses do offset gains.
Example: Bob owns three bitcoins and sells all of them in 2014. He had a gain of $600 on coin #1, a gain of $400 on coin #2, and a loss of ($900) on coin #3. Bob has a net gain of $100 for the year.
#2 What about long-term vs. short-term? Do these apply to losses also?
Yes. This is where the mechanics of the calculation start to come into play. Remember that when calculating gain or loss, all gains and losses are sorted into either "short-term" or "long-term" depending on whether the underlying bitcoin was held for more than one year. So, this means that there are actually four categories of gains and losses: (1) short-term gains, (2) short-term losses, (3) long-term gains, and (4) long-term losses.
The short-term gains and short-term losses are added together to reach a net short-term gain or a net short-term loss.
The long-term gains and long-term losses are also added together to reach a net long-term gain or a net long-term loss.
Finally, the long-term and short-term gain/loss are added together to reach one final number: your "net capital gain or loss."
#3 So what does that even mean? Can long-term losses be used to offset short-term gains? Or visa-versa?
Yes. The above calculation boils down to one important point: If you end up with a net loss in one category, that loss will carryover and offset your gains in the other category. So, yes, long-term losses can be used to offset short-term gains.
Keep in mind that this is all handled by your tax preparation software, so if your head is spinning a little bit, don't worry about it. All you need to remember is that losses offset gains of the same character first, and then any excess will carryover to offset gains of the other character second.
Example: Bob sold 2 bitcoins in 2014 that he's owned for 2 years. He had a gain of $1,000 on this sale. Bob also sold 3 bitcoins that he's owned for 13 months. He had a loss of ($1,500) on this sale. Finally, Bob sold 1 bitcoin that he's owned for 9 months. He had a gain $750 on this sale.
Bob has a long-term loss of ($500). Bob has a short-term gain of $750. * *Bob will report a net capital gain of $250 on his tax return (characterized as short-term).
note: For the sake of simplicity, I'm going to purposely disregard the short-term/long-term distinction for the rest of this post since it has very little impact on the issue of losses and would unnecessarily complicate the examples.
#4 Can bitcoin losses offset gains from other types of assets?
Yes. Bitcoins are a capital asset (except in a few limited circumstances), and therefore gains and losses from bitcoins are mixed together with the gains and losses from other capital assets.
Example: Bob sold 2 bitcoins in 2014 for a total loss of ($1,000.) Bob also sold shares of stock in Apple Corporation for a gain of $600 and shares of stock in Netflix for a gain of $400.
Bob has zero capital gains in 2014. Note: Bob still needs to include a Schedule D with his tax return, which will show these transactions and the calculation of his $0 net capital gain.
#5 What happens if my losses exceed my gains?
If you had more losses than gains during the taxable year, then the above calculation will result in a "net capital loss." A net capital loss is reported on your tax return as a negative number.
However, there is a ($3,000) limitation on capital losses. No matter how big your capital loss ends up being, you can only use $3,000 of it on your tax return.
Example: Bob decided that he made a bad investment in bitcoins and decided to cash out entirely. He sells all of his bitcoins for a loss of ($12,000) at the end of the year. Bob also sold some shares of stock for a $2,000 gain earlier in the year.
When Bob calculates his capital gains for the year, he ends up with a ($10,000) net capital loss for the year. However, he can only take ($3,000) of the loss on his tax return. The remaining ($7,000) of losses are put on hold and again carried forward to future years.
#6 What do I do with carried losses in the future? Can I use them to offset future gains?
Yes. Any losses in excess of the $3,000 limitation are carried forward and included in the net gain calculation in future years. There is no limit to how long you carry your capital losses.
*Example: Bob has ($7,000) of carried losses from 2013. In 2014, Bob sold shares of stock for a gain of $7,000. *
Bob will include his carried losses of ($7,000) in the calculation of his net capital gain for 2014. So, Bob has zero capital gains for 2014. Remember: bitcoins are a capital asset, and therefore gains/losses are combined with other capital assets like shares of stock.
Suppose instead that Bob had carried losses of ($15,000) from last year. When Bob's carried losses are included in the calculation of his net capital gains, he'll end up with a capital loss of ($8,000). Bob can report ($3,000) of this loss on his tax return, and the remaining ($5,000) becomes a carried loss and will be carried forward once again.
#7 Can I carry losses backwards to earlier tax years?
Unfortunately, the answer is no. Capital losses can only be carried forward. So, for example, losses realized in 2014 from the price collapse in bitcoin cannot be used to offset gains in 2013 (when bitcoin hit all-time highs).
Topic #2: Wash Sales
#8 What is a Wash Sale?
A wash sale is a transaction where an investor sells stocks or securities for a loss, but then repurchases the same stocks or securities within 30 days. The investor gets to claim a capital loss for tax purposes, but he or she is in essentially the exact same economic position. The loss really only exists on paper, nothing else about the investors position has changed.
Wash sales are prohibited by Section 1091 of the Internal Revenue Code. If a transaction qualifies as a "wash sale," it is essentially disregarded and the investor is not allowed to use the loss it generated (I'm choosing to skip the mechanics of the wash sale rule and how exactly it disallows the loss for the sake of simplicity). This led to a lot of gamesmanship over the years to get around the rules, with the result that Section 1091 and the Regulations cover just about every possible trick you can imagine.
Example: Bob owns 100 shares of Apple stock. On May 1st, Bob sells 50 shares for a loss of ($500). Three weeks later on May 21st, Bob purchases 50 shares of Apple stock. This second purchase of Apple stock triggers the wash sale rule under Section 1091 and Bob will not be allowed to use the $500 loss when calculating his gain/loss at the end of the year.
Note that the rule also applies backwards. So, if Bob tried to get around the 30 day rule by buying the 50 shares of replacement stock ahead of time on April 15th, the wash sale rules would still apply.
#9 Do the wash sale rules apply to bitcoin?
Probably not. The wash sale rules under Section 1091 apply only to "shares of stock or securities." Therefore, they do not apply to bitcoins unless bitcoins (and virtual currencies in general) qualify as "shares of stock or securities." This qualification would seem highly unlikely. There's just really no argument that bitcoins are "shares of stock or securities." The definition for these terms (taken from Section 1236, for example) is "any share of stock in any corporation, certificate of stock or interest in any corporation, note, bond, debenture, or evidence of indebtedness, or any evidence of an interest in or right to subscribe to or purchase any of the foregoing." Bitcoins would not appear to meet this definition.
So, as it's currently written, it does not look like Section 1091 applies to bitcoins and other virtual currencies. That could change in the future of course, but for the moment it seems to be the case.
#10 So can I use a wash sale to generate losses on bitcoin?
Yes. If bitcoins do not qualify as "shares of stock or securities" under Section 1091, then the rules do not apply. This mean that you can sell bitcoins to realize a loss, and then buy them back again to preserve your investment. However, that's not the end of the story. The IRS can attack this transaction with the "economic substance" doctrine, discussed below.
Example: Bob has capital gains from the sale of stock in Apple. He also has some bitcoins that he purchased for $1,200 each last November, but are worth only $300 currently. In order to offset the gains on his shares of stock, Bob sells his bitcoins for a loss of $900 each. He immediately repurchases the same amount of bitcoin, thereby creating a tax loss but not actually giving up his investment in bitcoin.
#11 What is the Economic Substance Doctrine?
The "economic substance doctrine" is a doctrine in US tax law that says a transaction must have economic significance aside from it's tax effects. Basically, a transaction that does nothing else but generate tax benefit is invalid under this doctrine. The parties to the transaction must actually incur some economic benefit or suffer some economic loss in order for it to be recognized by the IRS. A transaction that does neither, but still manages to generate some kind of tax benefit, will be invalid under this doctrine. It's become a very powerful tool for the IRS in attacking tax shelters and the courts are generally pretty supportive of the doctrine.
Because a bitcoin wash sale leaves you in the same economic position, but has generated a tax loss for your benefit, I wouldn't be surprised to see the Economic Substance Doctrine used to invalidate wash sales of bitcoins that would otherwise avoid Section 1091.
Example: The IRS audit's Bob from the previous example and discovers that he sold bitcoins in order to generate a tax loss, and then immediately repurchased the same amount of coins just moments later. The IRS will claim the transaction lacked economic substance and will disallow the loss.
#12 Is it possible to generate tax losses without running afoul of the Economic Substance Doctrine?
It's possible, yes. There is a tried a true principle of the Economic Substance Doctrine under which a transaction has "economic substance" if it exposes the parties to "market risk." This is true even if the market risk doesn't end up doing anything to change the economic position of the parties. As long as the parties put their economic interests at risk, the transaction has economic significant apart from the tax benefits it created.
So, this means that you can avoid the economic substance doctrine by waiting to repurchase your bitcoins. This waiting period exposes you to market risk due to the fact that you might be forced to repurchase at a higher price, and therefore it adds economic substance to the transaction.
#13 How long should I wait to repurchase after selling my bitcoins for a loss? Unfortunately, there is no clear answer to this question. Traditionally, the amount of time required to pass in order for a transaction to gain "economic substance" depended on the volatility of the market. The more volatile, the less time was needed. And visa-versa.
It goes without saying that bitcoin is an extremely volatile asset, so we can probably safely assume that you do not need to wait very long. 30 days (which is the requirement under Section 1091 for wash sales of stocks and securities) is certainly long enough, but would essentially defeat the point. Conversely, waiting only a matter of minutes is almost as certainly not long enough.
So, where does the magic number lie? It's impossible to say for certain. One day is definitely on the low end and probably the shortest amount of time that you could conceivably get away with (but it would still be quite risky). I would tend to think something in the three to five day range is more appropriate, with a week or more being a safer choice for those who want to eliminate the risk of the economic substance doctrine as much as possible. At the end of the day, the decision is up to you -- just keep in mind that longer is better.
Example: Instead of immediately repurchasing the bitcoins he sold, Bob from the previous example waits five days to make the repurchase. In the mean time, the price of bitcoin fluctuates 5% each day, but ends up at almost the exact same price that he sold them. Bob repurchases the same amount of bitcoin at this price. If Bob were audited, he would have a strong argument that the transaction did not lack economic substance because he exposed himself to the market risk of bitcoin, regardless of the fact that he was able to repurchase at the same price five days later.
#14 Should I use wash sales to generate losses by the end of the year?
Maybe. Typically the strategy of "taking losses" is used to offset gains that you might've had on other investments during the year. In that case, using a wash sale to generate losses could help reduce your taxes considerably.
On the other hand, a wash sale essentially resets your cost basis and holding period. By that I mean you now own the bitcoin at the new purchase price and the new purchase date. So, you'll have to weigh the possibility of higher capital gains in the future, as well as the possibility of losing long-term status, against the current year tax savings.
Conclusion
At the end of the day, losses on bitcoins are treated just the same as losses on shares of stock, with one exception: the wash sale rules of Section 1091 do not apply. Regardless, a wash sale lacking economic substance can be invalidated by the IRS, so it's a good idea to wait at least a few of days before repurchasing.
source: www.reddit.com/r/Bitcoin/comments/2qar39/i_am_a_tax_attorney_here_are_my_answers_to_common/