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If you lost money on Luna and Terra, you may have the opportunity to save thousands of dollars on your tax bill.Â
In 2022, the Luna ecosystem lost billions of dollars of value in the span of a few days. Many investors were left with holdings that were close to worthless.Â
In this guide, weâll break down everything you need to know about writing off your Luna losses on your tax return â whether you sold your coins or youâre continuing to hold.Â
What happened to Luna/Terra?Â
In May 2022, the price of Luna began to plummet after the ecosystemâs Terra stablecoin lost its peg with the U.S. dollar. Investors traded their Terra stablecoin for Luna, then exited their Luna positions, which tanked the price of both assets.Â
As a result, Lunaâs market capitalization fell from $30 billion to less than $1 billion in the span of a few weeks.Â
Can I write off my Luna/Terra losses?Â
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Can I write off my losses if I sold my coins?Â
If you sold or otherwise disposed of your Terra/Luna at a loss, you can claim a capital loss on your tax return. Remember, capital losses can offset capital gains and up to $3,000 of income for the year. Any capital losses above this amount can be rolled forward into future tax years.Â
For more information, check out our guide to crypto capital losses.Â
Can I write off my losses if I didnât sell my coins?Â
Typically, investors can only write off unrealized losses if there is no reasonable expectation of return and there is no trading volume on exchanges. Because Luna and Terra are still being traded on exchanges, itâs likely that you won't be able to claim a capital loss if youâre still holding your coins.Â
If you wish to claim a capital loss, youâll likely need to dispose of your Terra/Luna holdings.Â
My LUNA got converted to LUNC. Can I still claim my losses?Â
Weeks after Lunaâs crash, Terraform Labs released Luna 2.0. As a result, the coin originally known as Luna became known as Terra Luna Classic (LUNC).Â
The conversion of LUNA to LUNC will likely not be considered a taxable event. In the past, the IRS has not taxed these types of cryptocurrency ârebrandingsâ.Â
If you are holding LUNC, you can still claim capital losses by disposing of your assets. Your cost basis will be your original cost for acquiring LUNA.Â
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I was airdropped LUNA 2.0. How do I report this on my taxes?Â
If you were airdropped Luna 2.0, you will need to recognize ordinary income based on the fair market value of your coins at the time of receipt. This is the case even if the value of your airdropped coins declined after you received them.Â
For more information, check out our guide to airdrop taxes.Â
Where do I report my Terra/Luna losses?Â
All disposals of cryptocurrency should be reported on Form 8949. Remember, youâll need the following information to accurately report your losses.Â
- A description of the asset you sold (ex. 1.5 Luna)Â
- The date you originally acquired your coins
- The date you sold or disposed of your coinsÂ
- Proceeds from the sale (typically the fair market value at time of disposal minus any related fees)Â
- Your cost basis for purchasing your coins
- Your capital lossÂ
What should I do if I canât pay my tax bill?Â
If you held a significant portion of your net worth in Luna, you may find yourself in a situation where you can no longer afford to pay your tax bill. Luckily, there are options available to help you stay compliant with tax law.Â
Option #1: Long-term payment planÂ
If you owe $50,000 or less in taxes, penalties, and interest, you can set up a long-term payment plan. Youâll pay off your taxes in monthly installments for up to 5 years or until your balance is paid in full.Â
Option #2: Short-term payment plan
If you owe $100,000 or less in taxes, penalties, and interest, you can set up a short-term payment plan. Youâll be required to pay your tax liability within 180 days.Â
Option #3: Installment agreementÂ
If neither of the above options work for your situation (i.e. you owe more than $100,000), you can use Form 9465 to request a monthly installment plan from the IRS.Â
How can I get started with tax-loss harvesting?Â
Coins like Luna and Terra arenât your only tax-saving opportunities.Â
You can claim capital losses on any digital asset â including NFTs or DeFi tokens â thatâs currently trading at a loss position. Because most tax professionals agree that the wash sale rule currently doesnât apply to digital assets, you can claim capital losses and buy back the same position shortly after.Â
If youâre interested in getting started with tax-loss harvesting, crypto tax software like CoinLedger can help. The platform can help you identify your biggest tax-saving opportunities across all of your wallets and potentially save thousands of dollars on your tax bill!Â
Interested in getting started? Sign up for a free CoinLedger account today.Â
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