You buy a bitcoin for 20,000. You sell it for 50,000. At this point you probably owe capital gains on 30,000. You then take the 30,000, use it to buy an NFT, and later sell the NFT for 0.01 (because NFT). At this point you have had gain of 30k and loss of 30k. Now, it's going to depend a lot on exactly when all this happened and in which jurisdiction, but in many countries you probably owe tax on the 30k.
Usually if the loss happens in the same year, you can use them to lower your tax on gains. In your NFT example you'd first owe 7.5k (assuming 25% taxation), and with the 30k loss you'll be able to balance what you owe. The problem starts if you sell the NFTs in the next year, because then you can't use those losses to balance the already made gains, but only use it for future gains.
Yes this is my understanding.
Which jursidictions? Certainly not mine. If they happened in different years you'd have a tax in one year and an equivalently sized refund in another, but they'd balance out.
Where's that? In a lot of places, you'd get a capital loss on the loss, which can be offset against _future_ capital gains, but you won't get a refund if you have no capital gains to offset it against.
Can I move there lol.
That doesnt seem logical - the purchase of the NFT is a capital loss, which should offset the gains of the 30k of capital gains. Otherwise, it's an unfair tax regime.
I don't fully understand how NFT losses are treated (i.e. do you get a capital loss?) but the issue is with timing. THe tax man is not going to wait until you possibly convert to their currency to collect taxes; the gains and losses get attributed to the year when the transaction occurred. The high volatility in the investment is what makes the crazy swings possible - but this risk really should be priced into the expected return. I wouldn't be surprised if NFT gains are treated more like lottery winnings (in many jurisidictions); it's taxed at payout against the current year situation, regardless of what you do with it.
In the US, you can offset the gain, if the loss happens in the same year. If it happens later, then you're supposed to have paid the taxes in the year with the gain. The later loss can be used to offset gains after that.
It seems to be similar in New Zealand, where the article says that (like the US) there's tax due when you exchange one token for another without going out to fiat. A lot of investors didn't realize that and didn't pay their tax in that first year, and then didn't have the money later when the government came collecting.
Yo! Evil genious!