Tax lawyer breaks down the MicroStrategy Bitcoin sale

Enterprise intelligence agency MicroStrategy made headlines forward of New 12 months’s Eve because the sale of a portion of its Bitcoin (BTC) holdings drew the eye of business specialists and critics.

A regulatory submitting with america Securities and Alternate Fee (SEC) on Dec. 28 detailed the primary time the agency offered a few of its BTC since its high-profile adoption of the preeminent cryptocurrency as its major treasury asset.

MicroStrategy made waves within the business in 2021 because it started amassing vital holdings of BTC, with founder Michael Saylor touting the asset as a superior retailer of worth to fiat foreign money as a major purpose for the transfer.

Given Saylor’s function as a staunch Bitcoin proponent over the previous two years, MicroStrategy’s choice to promote a few of its BTC drew consideration throughout the business. Nevertheless, the corporate’s SEC submitting outlines clear intent to generate a tax profit.

MicroStrategy’s subsidiary MacroStrategy purchased 2,395 BTC for about $42.8 million between Nov. 1 and Dec. 21 at a median value of $17,871 per BTC. It then offered 704 Bitcoins on Dec. 22 at a median value of $16,776 per Bitcoin for $11.8 million, highlighting its intent to scale back its tax invoice:

“MicroStrategy plans to hold again the capital losses ensuing from this transaction towards earlier capital good points, to the extent such carrybacks can be found underneath the federal revenue tax legal guidelines at present in impact, which can generate a tax profit.”

Cointelegraph reached out to worldwide tax lawyer and CPA Selva Ozelli to unpack MicroStrategy’s Bitcoin sale and the reasoning behind it. As she explains, promoting cryptocurrencies for a revenue in America would require the fee of capital good points tax:

“Some traders select to scale back their capital good points in a given tax yr by promoting a few of their digital property at a loss. That is known as tax-loss harvesting.”

Ozelli stated that the observe is frequent for people within the cryptocurrency house, provided that property like BTC are handled as property by the Inside Income Service (IRS) and topic to capital good points and losses guidelines.

“Moreover, the wash sale rule, which prohibits promoting securities at a loss and reacquiring them inside 30 days doesn’t apply. As a result of crypto isn’t a safety, there isn’t a crypto-specific wash sale rule.”

MicroStrategy made use of this exception, reacquiring 810 bitcoins for about $13.6 million in money simply two days after realizing a loss on the sale of a portion of its holdings.

Ozelli highlighted the volatility of cryptocurrency market costs as a chance for retail and institutional traders to appreciate and harvest capital losses. The problem lies in figuring out property that current the best alternative for tax financial savings:

“The tough half for traders is figuring out which of the digital property of their portfolio have the very best value foundation (unique buy value) when in comparison with the present market value.”

Nonfungible tokens additionally current one other avenue to scale back tax liabilities. Famend DJ Steve Aoki has been promoting a wide range of NFTs on OpenSea, together with his exercise publicly viewable on his verified profile.

Experiences speculate that Aoki could have been trying to perform tax-loss harvesting. Cointelegraph has reached out to the DJ’s publicist to establish the explanation for the sale of tons of of NFTs from his intensive assortment.