Margin trading liquidations are considered a taxable event subject to capital gains tax. Even if you do not receive the proceeds of the liquidation, you'll still incur a capital gain or loss based on how the price of the liquidated collateral has changed since you originally received it.
How do I file taxes on crypto trading?
Reporting your crypto activity requires using Form 1040 Schedule D as your crypto tax form to reconcile your capital gains and losses and Form 8949 if necessary. You report your total capital gains or losses on your Form 1040, line 7.
Do you have to report crypto under $600?
Is it necessary to report crypto transactions under $600? US taxpayers must report every crypto capital gain or loss and crypto earned as income, regardless of the amount, on their taxes.
Do I need to report crypto if I didn't sell?
If you purchased the crypto with fiat but have not yet sold it, you don't need to report it. However, if you earned the crypto through another means, US taxpayers will report crypto earnings as income tax.
Does margin affect taxes?
If you itemize, you may be able to deduct the interest paid on money you borrowed to purchase taxable investments—for example, margin loans to buy stock or loans to buy investment property. You wouldn't be allowed to deduct the interest on a loan to buy tax-advantaged investments such as municipal bonds.
How is margin trading taxed?
In the US, any gains or losses made from margin trading crypto will be subject to capital gains tax, in alignment with the IRS' positioning as crypto as a property asset. Similarly, if you swap a crypto asset you made via margin trading for a different crypto asset, the IRS may see this too as a taxable event.