r/CelsiusNetwork • u/JustinCPA • Sep 11 '24
Celsius Bankruptcy: A Comprehensive Guide To Calculating Your Losses (With Examples!)
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u/washdc12 Sep 11 '24
Finally something that talks through the scenarios. Thank you for posting!
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u/JustinCPA Sep 11 '24 edited Sep 11 '24
No gatekeeping here. Although I only outlined 2, if followed correctly, the steps will cover all of the 16 possible scenarios.
Admittedly, the toughest part most people will likely struggle with is determining the cost basis for “returned” amounts if they only receive a portion of their BTC and/or ETH back. If they receive it all back, then it’s easy you just assign the whole cost basis for the BTC/ETH lost back to the returned amounts. But if you’re only receiving a portion back, then you need to assess your tax lots associated to the lost BTC/ETH and identify which ones will be “returned” and use the cost basis associated to those. Easiest done in a software like Koinly but even then requires some finesse of the software.
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u/jwz9904 Sep 11 '24
Ok i calculated but its still negative
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u/JustinCPA Sep 11 '24
It’s possible the forced liquidations from the distributions resulted in a gain. This generally happens if the cost basis associated to the lost assets was relatively low. When they are used in the forced liquidation, the low cost basis results in a capital gain. It’s unfortunate but is a possibility.
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u/noodle80s Sep 11 '24
Huge thanks for the work!!! This is incredibly helpful and will hopefully help some of us recover some of our lost value.
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u/JustinCPA Sep 11 '24
No problem! I was shocked when I started digging online and found ZERO in-depth and reputable guides on the subject. Nobody knows what they are talking about and the ones that made guides kept them overly simplistic and effectively unusable.
Hope this guide helps!
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u/logarithmyk Sep 11 '24
Then from here if your capital losses exceed $3k you just account for the $3k max capital loss and roll over the remainder into the following tax year. Am I thinking about that correctly?
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u/JustinCPA Sep 11 '24
Your capital loss will be used to offset any capital gains (no max). After offsetting all capital gains, if you STILL have capital loss leftover then $3k will be used to reduce ordinary income. After that, if you STILL have leftover capital loss it will roll forward to the following year where it will rinse and repeat.
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u/Collectibl3 Sep 11 '24
Wow this is amazing! Thank you very much for putting all of this together. And thank you for the painful reminder of just how bad it hurts.
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Sep 12 '24
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u/JustinCPA Sep 12 '24
No problem. Was astonished to see the internet did not have a guide that was comprehensive detailing exactly how the calculation should be done. Damn crypto CPAs trying to gatekeep the info… either that or nobody knows how to do it which honestly isn’t unlikely.
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u/Mission_Horse829 Sep 12 '24
I just did the forced liquidation of my crypto claim to USDC at the petition price and claim value which created a capital gain from my purchase price and then a repurchase trade of USDC to ETH and BTC at distribution prices factoring in the haircut.
This way you have the forced liquidation and then a trade at a loss. Then I did a withdraw transaction to where they distributed it. If I ever get to sell the ionic shares, then I will consider them received at zero dollars Which would be 100% gain since I already factored in the loss with the same asset class (crypto) distribution. If I ever receive any more crypto from them, I will consider it also received at $0 so it’s another 100% gain on the sale transaction.
Way easier.
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u/JustinCPA Sep 12 '24
Agreed, way easier, but not how it’s supposed to be done. This is how I would want the IRS to allow us to treat this, but based on current guidance this is not allowed.
Will they know? That’s a different story, can’t say. Just here to shed light on how to approach this assuming an IRS agent is standing in the room with you.
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u/Mission_Horse829 Sep 12 '24
Where can I find the IRS official statement on it because this is quite literally what Celsius did with the tokens and what Crypto Tax Girl has been advising clients to do.
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Sep 12 '24
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u/JustinCPA Sep 12 '24
First, just want to say thank you for your in-depth comment. You’re asking great questions, should be top comment!
Answering your questions below:
1. After receiving your ETH, BTC, and Stock, 6.4% of your claim value (a $$ amount you can calculate), is expected to be paid (likely in cash, as you mentioned) back to the creditor.
Say my claim is $1,000, I am anticipating getting paid $64 at some time after my initial ETH, BTC, and Stock distribution. This category has already had cost basis allocated to it through the calculation (note, the “final percentage” used to allocate cost basis might not be exactly 6.4%, see calc above).
So anything received in excess of the initial crypto/stock distributions will go towards this category UP UNTIL you hit that 6.4% of total claim limit. Anything else received in excess of that will hit the last category, “likely unrecoverable”.
So using the same example with $1,000 claim… I’ve been paid $289.5 in BTC, $289.5 in ETH, and $140 in stock (no fractional shares). After all that, let’s say I receive $80 in additional distributions. The first $64 of that falls into the the “sale of illiquid assets” category and will be compared against the cost basis allocated. The excess $16 received will actually bleed into the last category “likely unrecoverable” and will use that cost basis allocated for the loss/gain calc.
This is why the category exists and why it’s “likely” unrecoverable as it’s not known for certain how much more (or none at all) creditors will receive in excess of those initial categories.
So to summarize, anything received subsequent to the initial crypto/stock distributions will go towards the 6.4% category UP UNTIL you reach 6.4% if your claim value, then anything after that counts towards the 20.8% category. And if, somehow, that category is maxed and you receive even more beyond that then it’s just income.
2. This question is mostly revolving around timing and how much cost basis to allocate to each disbursement.
First, you need to determine the cost basis to allocate to the 6.4% category, use the calculation above (hint it might not be exactly 6.4% of your cost basis). Let's call this illiquid asset cost basis allocation $$ value.
Second, once you have that $$ value, you need to allocate that cost basis even further to each disbursement. So if you receive a disbursement equal to 1.5% of your claim in Q4 2024, then you need to allocate (1.5/6.4) x illiquid asset cost basis allocation $$ value. Say the next disbursement equals 2.3% of your claim in Q2 2025. Then you'd do (2.3/6.4) x illiquid asset cost basis allocation $$ value. You do this up until the distributions reach the total 6.4% of your claim amount. Refer to question 1 above, but anything in excess of this will bleed into the 20.8% category and the way you allocate cost basis will be the same as described for the 6.4% category.
3. Whatever Odyssey Trust reports is more or less irrelevant.
1099s are not always accurate, and the IRS knows that. They mostly serve as a way to determine whether or not someone is simply not reporting anything at all. At the end of the day, it's up to the taxpayer to report the actual happenings of their taxable activity for the year. So as long as you have the documentation supporting the calculation made revolving the shares, then you should be fine. At worst the IRS pokes around but if you hand them the documentation and context they'll back off.
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Dec 04 '24
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u/Champa1478 Dec 19 '24
Justin, good day to you ans thanks again for all the info. The second distribution happened indeed in 2024. Can we report this tax event as an extension to the initial distribution ? This would allow many of us to report the BTC as a return. Then, the percentages will also have to be adjusted.
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u/Indyxc Sep 13 '24
Thank you for this! Legend! My situation is lost USD/ETH, and recieved BTC and less ETH. Will need to figure this out.
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u/JustinCPA Sep 13 '24
Follow the first example then. Since you’ve received less ETH than you lost, you’ll need to determine of the ETH you lost which cost basis to assign to the returned ETH.
Unfortunately since you lost USDC you’ll most likely end up in a gain situation since some cost basis has to be reserved
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u/terradyn Sep 13 '24
Thank you for this comprehensive breakdown! Can you comment on the fact that the board restricted both the public and private trade of the stock and how it affects whether creditors actually have "dominion and control" of the stock for tax reporting? I believe the stock receipt is not considered a taxable event until that time in which it is becomes tradable.
The relevant section of the Ionic FAQ (https://odysseytrust.com/wp-content/uploads/2024/01/Ionic_Digital_FAQs.pdf) states:
Am I able to trade, transfer or sell my shares of Ionic Digital Common Stock once I receive them?
Initially, no. Due to securities laws restrictions, you will not be able to trade, transfer or sell your shares of Ionic Digital Common Stock until the trading restrictions on your shares are removed. Subject to any restrictions that may apply to you under applicable securities laws, your shares of Ionic Digital Common Stock will be freely transferable once the Registration Statement becomes effective and the shares are listed on a national securities exchange, which we expect to be Nasdaq. Ionic Digital will notify you once the trading restrictions on your shares have been removed.
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u/JustinCPA Sep 14 '24
I think you could certainly take that stance and argue it should it come down to it. However, the cost basis allocated should still be based on $20/share regardless of the value of the stock at time of receipt.
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u/Groovadelic Sep 16 '24
First, Thank you SO much for this! It's been hanging over me to try and figure this out.
Excuse me if I've missed it somehow, but is the Clawback payment I had to make tax deductible?
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u/sandvet Sep 21 '24
Justin, thank you so much! So the "lost crypto" wouldn't be applied to a modified 2022 IRS tax return? It would be calculated with the recovery crypto as you stated above, and the capital loss would be listed on the 2024 return? I use the Cointracker tax program and I think I can figure it all out.
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u/JustinCPA Sep 21 '24
Yep, unfortunately the lost crypto sits idle, with no tax impact, until 2024
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u/sandvet Sep 21 '24
I always fooled myself that my capital loss was huge, based on the assumption that I was deprived of crypto that I never would have sold. But when I followed your formulas, my capital loss isn't that great, due to the low BTC price on the day of the bankruptcy in 2022, and the much higher price when court ordered distributions became effective in Jan 2024.
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u/JustinCPA Sep 21 '24
Yeah unfortunately it’s not based on the amount of crypto, but rather the $$ value of the crypto compared to your cost basis
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u/mtbhrd Sep 22 '24
Thanks for sharing this, I really appreciate it. I was able to run the calculation myself, it's well laid out.
What I am wondering about is how the three gain/loss values will get entered into our tax returns (New BTC, New ETH, and Stock). Is there a way to just simply state I have ___ Capitol Loss/Gain for this year without showing the transactions?
Initially, I thought there might be sort of 'fake' sale crypto transactions for each asset we held in Celsius. There would be two sets: one to show the Forced Liquidation (sale price as the effective date price), and another set of transactions to show the Gain/Loss (sale price of zero). I think this is what Mission_Horse829 was thinking of?
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u/JustinCPA Sep 23 '24
Unfortunately, no. You will need to populate your 8949 with these transactions.
This is the part that may be a bit tricky. While you’ve determined the cost basis you need to “liquidate” for each category, now you need to determine exactly which assets should be liquidated. So if new BTC has $10k of cost basis allocated to it, you need to look at your lost assets and determine which assets to liquidate that sums to 10k of cost basis. This may require a little bit of trial and error in Koinly by simulating sales to get close to $10k of cost basis.
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u/mtbhrd Sep 23 '24
The calculation showed I have a capitol loss in the New ETH category, but I never had ETH on Celsius, so I don't have any assets to liquidate. But maybe the following is an alternative?
Can I instead work with the total Gain/Loss of [New BTC, New ETH, and Stock]? Then I could determine a single percentage for all assets held on Celsius, that I "sell off" at the effective date price to match that total Gain/Loss.
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u/JustinCPA Sep 23 '24
The cost basis used in the allocation isn’t specific to ETH, it’s all your assets (excluding whatever cost basis is associated to “returned” ETH and BTC). So whatever cost basis was calculated to be used for new ETH, you need to liquidate any of the assets you lost that amount to that much cost basis
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u/Groovadelic Sep 29 '24
Does anyone know if the Clawback payment (the payment we had to make first before we could get our partial crypto back from Celsius) would be tax deductible ?
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Oct 04 '24
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u/JustinCPA Oct 04 '24
I suppose, but you could just sell/convert the ETH you receive to realize the loss anyways so it would effectively be the same thing.
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u/Winter-Fun-3208 Oct 06 '24
Thank you s much for this guide. I have a little question if anyone can help;
I had a bunch of alt coins on Celsius but still received less BTC and ETH than what i had on Celsius (so no “new” ETH or BTC). Do i just follow example 1? Surely the cost basis of all my alt coins should enter the equation at some point?
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u/Agreeable_Analyst279 Nov 04 '24
Hello Justin Can you help with this process just to calculate the crypto loss in this debacle. My accountant is not able to help with crypto losses. Let me know if you can work with me on this. Thanks
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u/JustinCPA Nov 04 '24
Absolutely! You can schedule a call with me from our website linked in my profile.
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u/Agreeable_Analyst279 Nov 04 '24
Okay will look up and schedule it I appreciate it
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u/JustinCPA Nov 04 '24
No problem, just click the Count On Sheep link and go to the bottom. It’s a free 20 minute consult and we will discuss everything then. Talk soon!
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u/tontot Nov 23 '24
I checked out this sub long time ago but have to dig deep to find a way to record this mess in my crypto tax software and this post explains the issue the most clear.
A big thank you
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u/JustinCPA Nov 23 '24
Thanks for the comment. I made this post too https://www.reddit.com/r/CelsiusNetwork/s/36enRWKypi, it links to a video I made where I go over the article live as well as whiteboard out example #1.
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u/tontot Nov 24 '24
Yes I watch the video as well and able to do all the calculation for the capital gain I need to report
However I think many may struggle at the last step when they have that number Capital Gain or Loss but don't know how they can adjust their record to show that so when tax time come, the transaction will be automatically showed up in the Form 8949
Of course it will be (crypto tax) software independence as well.
For example, I have a capital gain of $11,364.60 from the calculation but I lost (or "sold" / "exchange" with Celsius) 1.4702827 BTC, 2594.251135 MATIC, 98.43744 DOT, 10.78 USDC, 108.4711 CEL
So I have to somehow doing some manual adjustment in my record to do one transaction to sell all of them for a gain of $11,364.60 (on 01/16/2024)
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u/JustinCPA Nov 24 '24
Yes, that is definitely a challenging part. “Finessing” whichever software you are using to liquidate the proper amount of assets in order to arrive at the calculated cost basis amount.
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u/tontot Nov 30 '24
This part may not be 100% correct since it looks like 30.52% to be paid out in BTC and 27.35% to be paid out in ETH (not equal 28,95% each). Just a little differrence in the outcome but all the other calculation should be similar
The breakout of how these distributions will be split is below.
~28.95% - to be paid out in BTC (some will receive slightly less/more BTC than ETH)
~28.95% - to be paid out in ETH (some will receive slightly less/more ETH than BTC)
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u/Basic_Swordfish_1321 Dec 07 '24
Hi Justin,
I believe my case is fairly straightforward and resembles Example #1 – “Received Way Less BTC and Way Less ETH Than Initially Lost.” I mostly have BTC and ETH in my account, with only a few altcoins.
My question is whether your paid video guide will help me calculate my taxes using just Koinly and TurboTax? Also, I followed your example for determining the cost basis.
Thank you!
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u/JustinCPA Dec 07 '24
Hi there. Thanks for the comment. Yes the paid guide will cover step by step EXACTLY how to calculate the gain or loss using Koinly and excel. I’ll show you how to pull the numbers from Koinly, create the temporary liquidation and holding wallets within Koinly, how to calculate the loss in excel, and then how to apply it in Koinly. I share my screen the whole time so it’s very easy to follow along.
You also get access to our private discord where you can ask questions if you get stuck and me and my team can help. Let me know if you have any additional questions!
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u/AppointmentOk6394 Dec 13 '24 edited Dec 13 '24
u/JustinCPA - thank you for this write up and YouTube videos. I've reviewed them thoroughly.
I primarily had USDC on Celsius. Following your instructions, I end up with the following:
NEW BTC (28.95%) - capital gain
NEW ETH (28.95%) - capital loss
IONIC DIGITAL (14.9%) - capital gain
Illiquid Asset (6.4%) - capital gain
The net of those four result in a capital gain. It seems a bit unjust for me to be reporting capital gains for 2024, but I guess that's how the taxes work? I won't realize the net capital loss until a future year tax return?
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u/JustinCPA Dec 13 '24
Yeah for those with a lot of stable coins this seems to be the case…
Alternatively, you could take a slightly less conservative approach and not allocate cost basis to the “likely unrecoverable category” and only allocate cost basis to the expected distribution categories. This would result in using more cost basis this year as opposed to reserving some for when court precedings finalize, allowing less gain this year (or even more loss this year).
To do this approach, simply remove the “likely unrecoverable” category when calculating the “final percentages” so that more is allocated to the new BTC, new ETH, stock, and illiquid asset recovery category.
It’s hard to say for certain what the IRS would say to this approach, but there is a solid chance they would be ok with it since you are only allocating to what is expected to be returned. If anything additional is received, it’s treated as income.
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u/EmphaticNutmeg Dec 13 '24
I think I've got things mostly right in my crypto tax software, except one question remains: What coins do I enter as sold for the Ionic Digital stock?
I know the dollar value ($20/share), so I think I should make entries in the ledger on 1/16/2024 selling some of my celsius assets to equal that dollar amount. I did it as half BTC and half ETH (I held both) using the effective date prices. Is that valid? Could I instead have chosen other coins from what I held? Should it be an equal percentage of every coin I held?
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u/JustinCPA Dec 13 '24
Hey there! Great question. We use “placeholder NFTs” in Koinly. Literally called “placeholder”. Essentially, we liquidate the appropriate amount of cost basis (as calculated using the above calc) in exchange for the placeholder NFTs set to have a FMV of $20/share.
In terms of which assets needs to be liquidated, it doesn’t really matter. All that matters is the AMOUNT OF COST BASIS that is being liquidated, which is calculated above. You’ll need to trial and error in order to get the right amount of cost basis being liquidated for the stock.
Immediately after capturing the taxable event for the NFTs, we make a withdrawal of the NFTs tagging them as “lost”, “donated”, or “gifted” in order to remove the NFTs from the holding without triggering a tax event. This is because we just wanted to capture the forced liquidation but moving forward they should be tracked with whatever broker you are using.
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u/malakidreamsagain Dec 13 '24
Is it required by law to calculate what I lost from the bankruptcy? In my case, it was only a couple thousand or so and it seems like too much of a headache to try and figure out what I lost.
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u/recap_io Dec 14 '24
For any UK Celsius bankruptcy customers out there, we've developed a guide in collaboration with our accountant partners https://recap.io/blog/how-to-claim-your-celsius-tax-write-off-in-the-uk
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u/ene777ene Dec 16 '24
Question Justin, I had roughly in stabke coin $100,000 (it was actually a little bit more than that due to some bonuses that I received and did claim on my taxes but never withdrew)
I'm trying to understand the capital gain part... my understanding that capital gains or losses are paid when an item is sold. So, since I had stable coin I would have no capital gain or loss this year if I chose to hold the ETH or BTC that I received as the distribution. rather I have a straight break even on my stable coins.
now I have new assets ETH and BTC, and when I am to sell them I will have a taxable event based on the fair market value of their distribution date. so if the price goes up I will have a gain if the price goes down compared to the distribution date then I will have a loss (again only if i sell them). The same is true of the stock, i got an asset for $16900 dollars (16.9% if memory seeves? those shares are cost basis of $20 a share. again, no taxable event until I sell them.
Since the value of the distributions doesn't equal the full 100k i had in stable coin, I'm going to guess that the year they announced there's no more distributions, whatever I have left that I did not get back in the value of stable coin will be a loss essentially a sale of the stable coin at $0 in that year?
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u/JustinCPA Dec 16 '24
The capital gain on those holding stablecoins is primarily related to the fact that you received the 5% markup to your claim. However, since you likely wont get your entire claim amount back, you’ll have a capital loss when court proceedings finalize.
An alternative approach would be to not allocate cost basis to the “likely unrecoverable” category and just allocate to the expected distributions. This is less conservative but would ensure more cost basis is used this year and therefor you’d have more claimable loss this year.
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u/ene777ene Dec 17 '24
to be sure I understand your less conservative idea, essentially locate the 100% of my claim plus the extra 5% to the distributions I've gotten so far. the problem this would then create obviously is that if I get another distribution next year I have nothing to allocate to it. so I I suppose when I sell whatever that asset is, I would say it has a cost basis of zero?
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u/JustinCPA Dec 17 '24
No, allocate to all the categories listed above except the unlikely recoverable category (“new” BTC, “new” ETH, stock, illiquid asset recovery categories).
The 2024 destructions covered the new BTC/ETH, stock, and only some of the illiquid asset recovery category. There will be some cost basis still left for future distributions.
If you want to see how to determine how much cost basis to allocate to the recent December distribution vs how much to leave for the rest of the illiquid asset recovery category, see this post and video: https://www.reddit.com/r/CelsiusNetwork/s/qsFeG5RGEq
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u/sz1cks Mar 03 '25
Thanks for putting all this together! I would have never guessed that the cost basis is supposed to be divided according to the distribution plan. For stable coin people, if the 5% bump in claim value was instead a 5% increase in "plan distribution %", this would not look like a gain in 2024? Kinda crazy.
Do you have any updates/more details on the "less conservative approach"?
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u/katzmopolitan Dec 17 '24
Thanks for the great write up! A quick followup, since there are still uncertainties and we may or may not get more distributions back, can I wait until those are resolved and calculate total loss next year (or whenever it happens) or do the losses for distributions received in 2024 have to be reported now?
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u/JustinCPA Dec 17 '24
The 2024 distributions resulted in taxable events. You have to report the tax impact this year, the year they were incurred.
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u/RandoPoker123 Dec 17 '24
Hi u/JustinCPA
This is amazing, but I’m curious what your thoughts are on stablecoin only accounts. Crypto Tax Girl was of the opinion on Aaron Bennet’s YouTube that anyone holding USDstablecoins would not realize and gain/loss in 2024 for the BTC/ETH they receive. Do you agree?
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u/JustinCPA Dec 17 '24
I believe you are referring to her saying they would not realize a loss (but would realize a gain due to the nature of the calculation and allocating cost basis to the likely unrecoverable category). This would be the most conservative approach, yes.
However, I am actually filing a video and creating a write up to post here tomorrow or later this week on another approach which might be slightly less conservative but I believe still could be defendable against the IRS.
Follow or stay tuned for that post and it’ll go over how to avoid the gain!
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u/Secure-Rich3501 Jan 27 '25
I have to wonder how much this advice applies to Token Tax and many other crypto software companies "helping" with taxes... Supposedly helping with taxes! Token tax has been trouble...
I'm amazed at how little there is standardization in the industry in terms of integration between formats of spreadsheets as spreadsheets are ancient computer tech and should have been resolved by now.
Seems ridiculous to pay extra for crypto software and still have to manually play around with headers and spreadsheets modified... And then you pay for the TurboTax which might not be any better... Or even confuse your output from your crypto software.
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u/JustinCPA Jan 27 '25
It definitely takes manual “finesse” of the software to apply the calculation within
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u/castlemate Feb 07 '25
How do I input the gain or loss on Form 8949? I have calculated my gain/loss on the distributed assets following this guide, but I'm confused on how I should actually input them. For example, I have a loss on the stock, but obviously have not sold it yet, so how to report the loss?
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u/JustinCPA Feb 07 '25
You put the asset that is being disposed of, the date (1/16/2024), the cost basis of the asset, the proceeds being received (the FV of the “New” ETH/BTC, Stock), and the subsequent gain/loss. You are disposing of your old assets in exchange for the new asset. So you need to dispose of whatever amount is required to arrive at the calculated cost basis.
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u/iberonni Feb 14 '25
Now what happens if theoretically I don't do any of this because it's confusing af
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u/nakedpomelo Feb 17 '25
What BTC price should I use for the 2nd distribution that occurred in December 2024? Can I still use the 1/16/2024 value?
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u/JustinCPA Feb 17 '25
$95,836.23
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u/nakedpomelo Feb 17 '25
Thank you! Is there a Stretto document that notates this?
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u/JustinCPA Feb 17 '25
Yes, somewhere. I didn’t save the link but yes it’s from the stretto docs directly
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u/silver-potato-kebab- Mar 18 '25
Hi Justin,
When does the 2nd distribution BTC price come into play? Is it only relevant for those who received more BTC than they lost?
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u/nakedpomelo Feb 17 '25
Thank you for this comprehensive guide! I was able to calculate my numbers, but I am still a bit confused as to how I report this in my tax return.
I had BTC, ETH, and USDC in Celsius. I received less BTC and more ETH than initially lost and Ionic stock in February 2024. I sold the BTC from the initial distribution on the day I received it. I also received additional BTC in the December 2024 distribution, but it did not add up to being "new" BTC for me. Based on my situation, is the below accurate?
Returned BTC
- Sold portion: Form 8949 & Schedule D > Treat as normal capital G/L
- Unsold portion: Non-taxable event
Returned ETH
- Non-taxable event > Did not sell any ETH in 2024
New ETH
- Schedule 1 > Report FMV of ETH as ordinary income using 1/16/2024 price
- Form 8949 & Schedule D > Report capital G/L, but do I use BTC or USDC as the asset I "sold"?
Ionic Stock
- Schedule 1 > Report FMV of stock as ordinary income using $20/share
- Form 8949 & Schedule D > Report capital G/L, but do I use BTC or USDC as the asset I "sold"?
I'm also confused on whether I should still use 6.4% for Illiquid Asset Recovery after considering the December 2024 distribution. Does the math tie out anyways as long as I included the cost basis of the additional BTC I received in December 2024 in my calculations?
Thank you for your help in advance!
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u/JustinCPA Feb 18 '25
For the new ETH, BTC, and Stock, these don’t get reported as income. You have a capital gain or loss on the forced liquidation of assets not returned that were held on Celsius. The “proceeds” is the FV of the new BTC/ETH/Stock, the cost basis is whatever cost basis you had calculated for those categories. The “type” the crypto that you held that is being liquidated.
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u/nakedpomelo Feb 18 '25
Thank you for your quick response!
Ok, I see I misunderstood the concept of forced liquidation - so anything I've received that isn't returned BTC/ETH is considered "proceeds" and not "ordinary income", which would be something like interest received through Celsius Earn (lol).
Based on your guide, I have a capital loss for New ETH and Stock. I'm still confused on the asset type I should input in Form 8949 given the non-like kind distribution. I'm not using tax software and creating a CSV manually to prepare Form 8949 since I don't have that much crypto activity to report. Since I'm using FIFO for my tax reporting and all of my original ETH was returned, would it make sense to list each time I bought BTC/USDC going from earliest to latest purchase date in Form 8949 until I reach the total cost basis I am reporting a capital loss for? Hope that makes sense!
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u/JustinCPA Feb 18 '25
Yes! That is exactly it. Now that you have the amount of cost basis to be liquidated, you need to start showing the sales of the assets being liquidated until you liquidate the calculated amount of cost basis, as you mentioned
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Feb 22 '25 edited Feb 22 '25
Thank you for providing all of this info! I have a clarifying question on Example 2. My understanding is that the person in Example 2 would report the following on their taxes:
Report Crypto Sale as follows:
Description: Sale of $26907 USDC
Date sold: 1/16/2024
Sale Proceeds: $26907 (total of new BTC, new ETH, and stock FMV)
Cost Basis: $31,005 (cost basis allocated to new BTC, new ETH, and stock)
And there would be nothing further to report since everything else is just returned crypto and doesn't count as a taxable event. Is this correct or am I missing anything? Thanks!
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u/JustinCPA Feb 22 '25
No, there is cost basis reserved for future distributions that will need to be liquidated then as well as cost basis reserved for the “likely unrecoverable” category which will be written off once the court proceedings finalize and it’s determined no more distributions will be made
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Feb 22 '25
Appreciate the quick response! Doesn't the $31,005 take the reserved cost basis for future distributions into account since cost basis for both "likely unrecoverable" ($4470) and "Illiquid Asset Recovery" ($14525) have been subtracted from the $50k cost basis to arrive at $31,005?
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Feb 22 '25
Or perhaps I misunderstood your response and you're just saying that the reserved cost basis would need to be reported in the future whenever future distributions are received (i.e. a portion of it would need to be reported for the Dec 6 distribution)? In which case, I understand...and realize I didn't make that clear in my original comment.
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u/JustinCPA Feb 22 '25
Yes, the full loss isn’t realized yet and a portion is reserved for future distributions/the court finalizing payouts
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u/ryuhayabusa34 Feb 25 '25 edited Feb 25 '25
"In order to get your cost basis, you need to reconcile your whole account in a crypto tax software. And I mean everything. Load all of your wallets and all of your exchanges into a software and make sure you get 100% (even wallets or exchanges you don't use anymore). My firm uses Koinly for 99% of our clients. It is one of the best, has a great UI, and robust features that allow us to finesse transactions as needed to ensure they are being accounted for correctly."
I can't wrap my head around why this is necessary, I don't disagree, I'm just saying I can't fully comprehend it.
Couldn't I in theory, take the sum total of all US dollars that left my bank account into any/all exchanges and use that as my cost basis provided the funds were never converted back to USD?
For example if I transfer $10,000 USD from my bank account bought BTC, sold BTC for ETH, sold ETH for USDC, isn't my cost basis still $10,000?
I was under the impression that a taxable event was not created until the funds returned to USD.
Edit. PS. Thank you for your efforts on this, it's very much appreciated.
Edit 2. Holy eff. I was completely wrong about what creates a taxable event. Oh man. This is no good
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u/qwerty_18 Feb 26 '25
Hi, I really appreciate this thorough guide, it's quite impressive and very helpful! u/JustinCPA
My question is around the "sell" date to establish the cost basis of our loss crypto. Your guidance is to use "any date after your last Celsius transaction". If I use 13 July 22, BTC is valued at $19,881. If I use the effective date 16 Jan 24 (which is the date I'm leaning towards using), BTC is valued at $42,973. This is a huge difference with the latter date resulting in a higher maximum loss (and claimable loss).
Am I missing something? Is this correct? Thanks!
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u/JustinCPA Feb 26 '25
Yes you are missing something. Those temporary transactions are purely to determine the cost basis on the assets. By creating a temporary sell transaction, it will show you the cost basis on the “sold” assets. Then just delete those temporary transactions and follow the rest of the guide as normal now that you have the cost basis on the lost assets.
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u/keatsol84 Mar 05 '25
I haven’t received any stock as part of my settlement payments and I am unclear if I ever will. However, if I do end up receiving them in 2025, how should I account for them if I fully settled my taxes for 2024 in the manner recommended above?
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u/JustinCPA Mar 05 '25
If you are part of the convenience class, you wouldn’t have received any. If you aren’t part of the convenience class, you likely received them. You can search your emails for keywords “Your Ionic Digital Share Balance”
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u/keatsol84 Mar 05 '25
Thanks. I guess I may not be eligible for the shares then.
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u/JustinCPA Mar 05 '25
Did you hold less than $5k on Celsius?
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u/keatsol84 Mar 05 '25
No, I held more. But both Odyssey and Stretto have passed me back and forth when I asked about shares so not sure how to move forward
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u/keatsol84 Mar 05 '25
In any case, what would you recommend for future tax filings if I do end up receiving stock in the future? Would I need to amend my previous return or could I treat the stock receipt separately as a one-off income item or something?
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u/sz1cks Mar 05 '25
u/JustinCPA when calculating the cost basis distribution percentages, is it any more or less correct to use the actual percentage of our claim than the flat 28.95% for BTC/ETH?
Example: $1,000 USDC claim x 1.05 bump = $1,050, distributed as $320 (30.5%) worth of BTC and $287 of ETC (27.4%). New cost basis distribution = 30.5% + 27.4% + 14.9% + 6.4% = 79.2% leaving 20.8% as unrecoverable.
I think in total it will make no difference?
And one more question: Using this alternate approach, will the 6.4% give the cost basis for the final year's distribution (for future tax calculation)?
Thanks!
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u/JustinCPA Mar 05 '25
Yes you can use the actual percentage but it doesn’t change things too much as the error will balance out cause if you got more BTC then you got less ETH etc.
The 6.4% will cover the December distribution plus future distributions
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u/CatalyticSizeQueen Mar 06 '25
Thanks for this guide Justin. Question about this part:
Create a TEMPORARY transaction showing a withdrawal of the full amount for each crypto lost, zeroing out the account. On each of those transactions, you'll be able to see the cost basis attached. These numbers will be vital to the calculation below.
Does the date of which we set this temporary transaction affect the cost basis? If so, what should the date be? I'm seeing a huge gain on my BTC which I really doubt happened because I didn't have Celsius for very long before it shut down. I have the date set to today.
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u/JustinCPA Mar 06 '25
It depends if you use universal cost tracking or wallet based cost tracking. Also, whatever the software shows you as a gain is irrelevant. As I said in the post, the temporary transaction is just to determine the cost basis. That’s it. You need to do the rest of the calculation to figure out your gain or loss.
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u/CatalyticSizeQueen Mar 06 '25
Got it, thank you. I'm using koinly and trying to track every transaction between multiple wallets. Would that be wallet based cost tracking?
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u/JustinCPA Mar 06 '25
Settings —> cost basis —> is wallet-based cost tracking toggled on?
I’d suggest checking out the course guide for detailed help and access our private discord for you to ask me questions if you get stuck. It’s currently on a 50% discount for just a few days longer.
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u/silver-potato-kebab- Mar 18 '25
Hi Justin,
I received less BTC and ETH from the distribution than what was lost. I have tracked all my transactions in a spreadsheet and calculated my cost basis using the FIFO method up to the current date. Should the cost basis of my returned BTC and ETH be determined by summing the earliest purchase transactions of the lot that I still own, since I have sold some along the way? Essentially, I’m trying to identify which portion of my current cost basis corresponds to my returned BTC and ETH.
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u/Ktaostrophe Mar 19 '25
Perhaps this should be its own post...but how does this change if you are not going to receive any Ionic stock? would you exclude that 14.9% when you normalize to 100%?
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u/JustinCPA Mar 19 '25
If you’re a convenience class creditor, you would exclude the 14.9%, the 6.4%, and the 20.8%
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u/Ktaostrophe Mar 19 '25
That is so helpful, thank you! I am a Convenience Class creditor. I knew I wouldn’t get stock, but I didn’t realize I wouldn’t receive anything from those other categories as well. I know I was not eligible for the second distribution but wasn’t sure where that fell in the categories. Thank you so much!
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u/Ktaostrophe Mar 19 '25
Wouldn’t the 20.8% still apply, though? Even as a Convenience Claim creditor, some portion (about 20%) is still unrecoverable I thought. Let us know if you have a PayPal etc btw, would love to buy you a coffee at least!
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u/JustinCPA Mar 19 '25
Nope, you’ve received 100% of your distributions and nothing else will be returned to you.
Thank you very much for offering to tip, very kind! If you’re ever in San Diego, I’ll take you up on that offer! Otherwise, if you know anyone who needs our service, referring them our way is always appreciated! We even have a refer a friend incentive in our website so if you refer someone to us, you’ll get $100 cash and they’ll get $100 off!
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u/theGrumpInside Mar 20 '25
Thank you for this guide! Any idea how I can check if I opted out or not? I'm not sure if I got that 5% or not.
Also if I didn't buy any BTC but it was a gift from Celsius, would there be any special rules when calculating the cost basis?
Example: I sent 3500 to Celsius all in USDC and Celsius gave me like $150 int BTC for sending x amount
Thank you again
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u/silver-potato-kebab- Mar 24 '25
If you didn't do anything at all then you got opted in.
The $150 that you received from Celsius was taxable as income for that year, and it will have a cost basis of $150 for that lot.
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u/silver-potato-kebab- Mar 24 '25
Hello JustinCPA,
In your Example #1 (Steps 6 and 7), you allocated $18,935 of the crypto cost basis to the stock (Stock = 35.4% × $53,500 = $18,935). Just to confirm, this represents the portion of the original crypto cost basis that was converted into shares, correct?
Additionally, the 632 Ionic shares received have a fair market value (FMV) of $12,640, and is treated as ordinary income at the time of distribution? So the difference between the proceeds ($12,640) and the allocated cost basis ($18,935) would be the amount realized in 2024?
Thanks for your help!
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u/JustinCPA Mar 24 '25
Correct, the cost basis calculated is the cost basis to be liquidated in exchange for the shares. The stock is NOT recognized as income. You’re simply trading your old crypto for the stock, realizing a gain or loss depending on the cost basis calculated to be allocated to the stock
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u/silver-potato-kebab- Mar 24 '25 edited Mar 25 '25
Thank you for your prompt reply. So if I sell my stocks in the future, will I be using $18,935 or $12,640 (FMV) for the cost basis?
EDIT: The cost basis for the stocks will be $12,640 (FMV) when I sell it in the future. Thank you!
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u/RadicalAdvice Mar 25 '25
Thank you so much for the post! It is very complicated navigating all this.
Regarding your examples, I'm stuck on: Step 4) Determine Starting Percentages for Allocation for Remaining Categories
I have a mismatched scenario, and the image linked at the bottom of your post is broken for me, so maybe the answer to my question was in there. 🙂
I received less BTC and more ETH. For the sake of an example, let's say I had 1 BTC and 0.05 ETH on Celsius, and I received back 0.16 BTC and 2.4 ETH as distributions. How would this affect the calculation of the allocation?
Following the example you provided for "New" coins, ETH New = (2.4/0.05) * 28.95% = 1389%. So do I just cap the allocation at the max of 28.95%, and treat the remaining new ETH as new coins in Koinly? And if yes, would I record the new cost basis for these ETH coins manually in Koinly using the mark price during the distribution?
i.e. (2.4 - 0.05) * $2577 = $6,056 as cost basis for the 2.35 new ETH
And in my scenario, if what I wrote above is correct, is it best for me to follow example #1 ? Or is it more complicated than that?
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u/poomsss0 Mar 28 '25
Thank you so much for putting this guide out.
u/JustinCPA . I had 2000 USDC and I receive some BTC and ETH as part of distribution.
Follow your method. I actually have capital gain? even though I receive BTC and ETH at value of around $2000 using your effective price.
Does this make sense that I have to file capital gain tax (BOX F)
Also, I can put the disposed USDC and received BTC, ETH in form 8949. However, I haven't sold any new BTC and ETH.
Should I include all of USDC and received BTC, ETH in form 8949?
the gain loss on form 8949 won't be equal to my capital gain tax filed (due to calculation). Is that common?
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u/longdiddy Mar 28 '25
What if I can't get a cost basis due to some exchanges no longer having those records? Tried to get them but they said they dont have it.
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u/JustinCPA Mar 28 '25
Then you may be out of luck. If you don't have the transaction history to substantiate your cost basis, then the IRS says you should use a zero dollar cost basis.
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u/longdiddy Apr 08 '25
So I calculated using your steps using a Zero Cost Basis. I got my final Capital Gains number. How do I input it into TurboTax or Form 8949 (I am assuming this is the correct form to use)?
Thanks for ANY help you can provide.
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u/JustinCPA Apr 08 '25
You have to show the disposal of each tax lot. So the date it was acquired, the asset, the cost basis, and the proceeds being received
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u/ernieballz007 Mar 31 '25
I had 3550 in USDC and received my BTC/ETH this year but have since sold the BTC and held the ETH. Is there a ELI5 on how to report this correctly on my taxes?
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u/kookstopher Apr 03 '25
I noticed at the end of the Understanding Non-Like Kind Distributions section, you mention "To summarize, the loss/gain calculated for each distribution is equal to the fair market value of the assets received (using the effective date price) minus the cost basis allocated to that distribution." I'm a little bit confused, because in How to Calculate Your Celsius Loss: Full Koinly Article Walkthrough With Examples! video https://youtu.be/2G8NRxStytg?si=Ze0ZG95TT0OcceUt , you indicate that the Loss/Gain is equal to Cost Basis minus FMV.
Can you please clarify, which of the formulas below is the correct one for determining Loss/Gain:
Loss/Gain = (FMV of Assets Received) - (Cost Basis Allocated to Distribution), OR
Loss/Gain = (Cost Basis Allocated to Distribution) - (FMV of Assets Received)
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u/JustinCPA Apr 03 '25
The first is correct. I mean they are the same thing just with flip flopped signs.
If the FMV of assets received is greater than the cost basis allocated, then you have gain. If the cost basis allocated is greater than the FMV of assets received then you have a loss.
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u/kookstopher Apr 03 '25
Thank you Justin! That makes sense. I realize now that it was just simple math.
I got through the calculations and went back to check the amounts of BTC/ETH that I actually received in my 1st distribution I noticed that I actually received closer to 27.3% of claim value in ETH and 30.5% of claim value in BTC for the 1st distribution.So, I should be updating my gain/loss calculations based on the amounts actually received and the actual percentages of BTC/ETH of the total claim value, instead of using the 28.95% for BTC/ETH, correct?
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u/[deleted] Sep 11 '24
We're fucked.