German Tax on Dead Crypto: No Loss Without a Sale

A token down 98% from its entry price feels like a tax write-off. To the German finance ministry it is nothing at all, as long as the coins stay in your wallet. No sale, no swap, no payment with the token has occurred. The price fall carries zero tax effect, regardless of how deep it goes or whether anyone is still bidding.

That gap between economic damage and tax recognition costs investors real money. The cause is no special crypto rule. It is the logic of the private disposal transaction under Section 23 of the German Income Tax Act. Anyone who understands the timing can shift thousands of euros of tax burden in a bad year. Anyone who misses it pays the full rate on later gains, even though the loss was borne economically long ago.

For crypto held privately, German income tax law knows no loss in value. It knows only a disposal transaction. What is taxable under Section 23 (1) sentence 1 no. 2 is the sale of another asset where no more than one year lies between acquisition and disposal. Without that event there is no gain to tax and no loss to claim.

A coin that fell from 4,000 euros to 40 euros reduces your tax bill by exactly zero euros while it sits in your wallet. Only the sale, the swap into another crypto asset, or paying for goods with the token turns the book loss into one you can use. The gain or loss is worked out from the disposal proceeds less the acquisition costs and related expenses, the federal finance ministry says in margin number 57 of its crypto assets circular. All three figures presuppose a transaction. Where the proceeds are missing because nothing was sold, the basis for the calculation is missing too.

The classification decides which income you may offset the loss against. The Federal Fiscal Court settled the question in its judgment of February 14, 2023, case number IX R 3/22. Virtual currencies in the form of currency tokens count among the other assets that can be the subject of a private disposal transaction, the first headnote states. The proceedings involved bitcoin, ether and monero; the lower instance was the Cologne Fiscal Court under case number 14 K 1178/20.

Crypto losses sit in a pot of their own. They are not investment income running through a bank's loss pots, and they do not reduce your salary. Gains on shares, interest or dividends in the same year cannot be offset against a crypto loss. All private disposal transactions under Section 23 fit into the offsetting. Alongside crypto assets that includes physical gold and silver, collectors' items such as watches or art, and property within the relevant periods. A loss on a sold altcoin can neutralise a gain on the sale of a gold coin, provided both events are taxable.

The one-year holding period works in both directions. Sell at a gain after more than twelve months and you pay no tax. Sell at a loss after more than twelve months and you get no recognition for it. The event is simply not taxable, and an event that is not taxable produces no deductible loss.

With losing positions you intend to unwind anyway, the moment before the anniversary of the acquisition is the one that works for tax. Sell a position bought in October in the following November and you carry the same economic damage with nothing to show for it. Where the same coin was bought several times at different moments, allocating the individual tranches is what counts. Without clean records there is no way to show which units were acquired when, and without that evidence the period cannot be proven.

The offsetting rule sits in Section 23 (3) sentence 7 and is drawn narrowly. Losses may be set off only up to the amount of the gain from private disposal transactions in the same calendar year. The general loss deduction under Section 10d is expressly ruled out. Say you realise 6,000 euros of gains from short-term crypto sales in one year and 4,500 euros of losses from unwinding two collapsed positions. Both amounts are offset in full, leaving 1,500 euros of taxable overall gain. Had you not realised the loss, the full 6,000 euros would have been charged at your personal income tax rate.

A loss with no matching gain in the same year does not evaporate. Section 23 (3) sentence 8 opens the door that sentence 7 had just closed. In accordance with Section 10d, the losses reduce the income from private disposal transactions in the immediately preceding assessment period or in the following assessment periods. The carry-back reaches exactly one year into the past: if you had taxable crypto gains last year and losses this year, the old assessment can be amended and tax refunded. The carry-forward runs into the future without a time limit and waits there for the next gain from a private disposal transaction.

A carried-forward loss has to be separately assessed. That happens only where the loss was declared in the tax return for the year of the loss. Anyone who does not file at all for a bad year, because no tax is due in any case, loses the carry-forward for every later year. That return is no formality but the only way to preserve the loss.