Crypto Losses Only Recognized When Assets Are Sold or Swapped

The tax office in Germany has a specific rule for crypto assets that can lead to a significant amount of tax burden. According to Section 23 of the Income Tax Act, a loss on a private disposal transaction is not recognized until the asset is actually sold or swapped into another asset.

This means that even if a coin's price has fallen by 98% and it's no longer worth much, there is still no loss for tax purposes as long as it remains in your holdings. The only way to claim a loss is through a disposal transaction, such as selling the token or swapping it into another asset.

The Federal Fiscal Court settled this question in its judgment of February 14, 2023 (case number IX R 3/22), ruling that virtual currencies like Bitcoin, Ether, and Monero are considered other assets subject to private disposal transactions under Section 23.

However, if you sell a crypto asset at a loss after more than twelve months, the event is not taxable, and therefore no deductible loss can be claimed. This means that investors with losing positions should consider selling before the one-year anniversary of acquisition to avoid this situation.