Before diving into how losses in one asset class can offset gains in another, it is important to understand the concept of capital gains and losses.
When an investor sells an asset for more than they originally paid for it, they have realized a capital gain.
Conversely, when an investor sells an asset for less than they originally paid for it, they have realized a capital loss.
Capital gains and losses are important for tax purposes because they can affect an investor’s taxable income.
Capital gains are typically taxed as income, while capital losses can be used to offset capital gains in the same tax year.
When it comes to offsetting crypto losses against stock gains, the process is relatively straightforward.
If an investor has realized capital losses in cryptocurrency trading, those losses can be used to offset capital gains in stock trading.
This means that the investor will pay less in taxes on their stock gains because they are able to deduct their cryptocurrency losses.