Taxation on crypto currencies - please read before asking

241 posts in this topic

On 6/19/2017, 8:53:41, PandaMunich said:

 

Yes, any change will mean a profit (the way these crypto currencies have been rising) that has to be taxed immediately and which is "calculated" via the reference currency €.

 

So changing Bitcoin into Ethereum less than a year after you bought the Bitcoin means:

  1. a sale of Bitcoin in which you get € --> profit (= [selling price in €] minus [purchase price in €]) from selling Bitcoin, has to be declared in Anlage SO, lines 41 to 46.
  2. a purchase of Ethereum paid with these same € - so now you have an € purchase price for those Ethereum, which you will need when you sell them again down the line.

The Finanzamt assumes a FIFO - first-in-first-out - order of using up the money, see §23 Absatz 1 Nr. 2 Satz 3 EStG.

 

Details in (that article is correct except that he says both FIFO and LIFO are possible, that's not the case, the law only allows FIFO, see above): http://www.gevestor.de/details/bitcoin-und-steuern-was-anleger-unbedingt-wissen-muessen-801380.html

Hello Panda, 
Thanks for your thouroughly explaination of taxation rules. I still have questions about selling crptos:
 
case1:
1. I purchase 1000 BTC with all my ETH, on 11.11.2017, for that I have proof from the exchange.
2. I hold this 1000 BTC and not sell any of that in the next 1 year.
3. I sell 100 BTC on 12.11.2018 for EUR therefore I have profit 100BTC * (Price2018-Price2017)
 
Question: How should I declare the profit correctly?
 
case2:
1. I purchase 1000 BTC with CNY in China, in OTC market, on 11.11.2017
2. I sell 1000BTC for EUR in Germany, on 12.11.2017
 
Question: If the price is not changed, and I have no profit (but convert CNY to EUR), How should I declare this? Do I need to pay any tax?
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Case 1: for how much time did you own the Ethereum (ETH) that you used to buy the Bitcoins?

 

22 minutes ago, veaydr said:
case2:
1. I purchase 1000 BTC with CNY in China, in OTC market, on 11.11.2017
2. I sell 1000BTC for EUR in Germany, on 12.11.2017

 

Case 2: are you sure you sold on 12.11.2017, or did you mean 2018?

Did you "buy" the CNY by exchanging another currency, e.g. euro, for them?

Did you keep the Chinese Renminbi (CNY) in an interest-bearing bank account?

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On 6/19/2017, 8:53:41, PandaMunich said:

 

Yes, any change will mean a profit (the way these crypto currencies have been rising) that has to be taxed immediately and which is "calculated" via the reference currency €.

 

So changing Bitcoin into Ethereum less than a year after you bought the Bitcoin means:

  1. a sale of Bitcoin in which you get € --> profit (= [selling price in €] minus [purchase price in €]) from selling Bitcoin, has to be declared in Anlage SO, lines 41 to 46.
  2. a purchase of Ethereum paid with these same € - so now you have an € purchase price for those Ethereum, which you will need when you sell them again down the line.

The Finanzamt assumes a FIFO - first-in-first-out - order of using up the money, see §23 Absatz 1 Nr. 2 Satz 3 EStG.

 

Details in (that article is correct except that he says both FIFO and LIFO are possible, that's not the case, the law only allows FIFO, see above): http://www.gevestor.de/details/bitcoin-und-steuern-was-anleger-unbedingt-wissen-muessen-801380.html

 
Case1, ETH is purchased in days, not long.
Case2, I mean 2017, the second day, the purpose is to convert my CNY into EUR, the CNY are kept in a "Girokonto" in China. These CNY are my after-tax money.
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Case 1:

You need the purchase price of the ETH, in €, back from the date you bought them.

You then calculate the profit from the ETH-transaction:

  • ETH profit, to be declared in Anlage SO = (selling price of ETH in € on 11.11.2017) - (purchase price of ETH in € on ??.11.2017)

 

The Bitcoin profit is tax-free since you kept them for more than 1 year, and therefore it is not declared in your tax return.

 

****************************************************************

 

Case 2:

Let's have a look at the CNY transaction:

  • if those CNY were your Chinese salary while you were living in China and you saved them and simply changed them into Bitcoin while you were still living in China, the CNY-transaction is not part of a German tax return (though if you received them in the year you moved to Germany, you do have to declare them as part of your pre-move income in line 95 of the Mantelbogen ESt1A).
  • if you mean that the CNY were your Chinese salary while you were actually living in Germany, then you have to declare that entire CNY amount (converted into €) as income in Anlage N-AUS!
  • if the CNY were income from a freelancing activity while you were actually living in Germany, then you have to declare that entire CNY amount (converted into €) as income in Anlage S!

 

The profit from the Bitcoin transaction is:

  • Bitcoin profit, to be declared in Anlage SO = (selling price of Bitcoin in € on 12.11.2017) - (purchase price of Bitcoin in € on 11.11.2017)

 

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6 hours ago, PandaMunich said:

Case 1:

You need the purchase price of the ETH, in €, back from the date you bought them.

You then calculate the profit from the ETH-transaction:

  • ETH profit, to be declared in Anlage SO = (selling price of ETH in € on 11.11.2017) - (purchase price of ETH in € on ??.11.2017)

 

The Bitcoin profit is tax-free since you kept them for more than 1 year, and therefore it is not declared in your tax return.

 

****************************************************************

 

Case 2:

Let's have a look at the CNY transaction:

  • if those CNY were your Chinese salary while you were living in China and you saved them and simply changed them into Bitcoin while you were still living in China, the CNY-transaction is not part of a German tax return (though if you received them in the year you moved to Germany, you do have to declare them as part of your pre-move income in line 95 of the Mantelbogen ESt1A).
  • if you mean that the CNY were your Chinese salary while you were actually living in Germany, then you have to declare that entire CNY amount (converted into €) as income in Anlage N-AUS!
  • if the CNY were income from a freelancing activity while you were actually living in Germany, then you have to declare that entire CNY amount (converted into €) as income in Anlage S!

 

The profit from the Bitcoin transaction is:

  • Bitcoin profit, to be declared in Anlage SO = (selling price of Bitcoin in € on 12.11.2017) - (purchase price of Bitcoin in € on 11.11.2017)

 

Thank you very much for the detailed answer! Maybe you already know, all exchanges are closed in China now. I can only buy bitcoin from other private person. How can I proove my purchasing price? Is a contract signed by both seller and buyer enough?

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You would also need to provide proof of the transactions, e.g. screen shots, and proof that the exchanges are closed (with pencilled in German translations of all keywords on these paper print-outs).

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Hi PandaMunich, thank you so much for helping us out here. I was wondering the following: 

A friend of mine is working at a cryptocurrency company in Germany. As part of his salary, he gets paid a bonus in cryptocurrencies by his employer. How would this be taxed in Germany? 

Based on my small research I assumed the fair market value of the cryptocurrencies at the date of receiving the bonus would be considered salary and subject to wage tax. After that, in case the cryptocurrencies would be subsequently sold it should be subject to capital gain tax on the profit of the sale (if sold prior to one year holding period) or may be exempt (if sold after the one year holding period). Is this true?

Furthermore, what would happen if he would receive options on cryptocurrencies by the employer? Would they be taxed upon granting, vesting, or exercising? 

 

--


A different question I had was whether when you become tax resident in Germany, the cryptocurrencies you own are revalued to FMV as your "openings balance" at the date of arrival? In a similar light, I was also wondering whether there is an exit-charge when leaving Germany? 

Many thanks in advance!

Kind regards,

 

chocomel

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6 hours ago, chocomel said:

Based on my small research I assumed the fair market value of the cryptocurrencies at the date of receiving the bonus would be considered salary and subject to wage tax. After that, in case the cryptocurrencies would be subsequently sold it should be subject to capital gain tax on the profit of the sale (if sold prior to one year holding period) or may be exempt (if sold after the one year holding period). Is this true?

 

Yes.

 

6 hours ago, chocomel said:

Furthermore, what would happen if he would receive options on cryptocurrencies by the employer? Would they be taxed upon granting, vesting, or exercising?

 

They would be treated the same way stock options are:

 

6 hours ago, chocomel said:

A different question I had was whether when you become tax resident in Germany, the cryptocurrencies you own are revalued to FMV as your "openings balance" at the date of arrival?

 

No, their fair market value (FMV) when you move here isn't relevant.

 

If you sell these cryptocurrencies within a year of buying them, the entire profit gets taxed by Germany:

selling_price_in_€ - buying_price_in_€

 

The buying price in € would be how many € those Bitcoins/ethereums/... would have cost on the day you bought them, even if that day was before you moved to Germany.

 

6 hours ago, chocomel said:

In a similar light, I was also wondering whether there is an exit-charge when leaving Germany? 

 

No.

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Hi all,

 

I would advise anyone trading crypto to start using cointracking.info as soon as possible. It's a great service, and has features specifically designed for creating tax reports, especially Germany since it's developed in Munich.

 

The pro accounts are extortionate, but you can input all your data manually with patience and discipline. Hence why it's better to start using sooner rather than later.

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20 hours ago, PandaMunich said:

 

Yes.

 

 

They would be treated the same way stock options are:

 

 

No, their fair market value (FMV) when you move here isn't relevant.

 

If you sell these cryptocurrencies within a year of buying them, the entire profit gets taxed by Germany:

selling_price_in_€ - buying_price_in_€

 

The buying price in € would be how many € those Bitcoins/ethereums/... would have cost on the day you bought them, even if that day was before you moved to Germany.

 

 

No.


Thank you very much for the detailed response. If I understand you correctly, there seems to be a discrepancy between taxation of cryptocurrency options and cryptocurrencies, do you agree with this?

For example: 
Let's say employer X has the choice to either give his employee as wage: 
1. 60 Bitcoin or;

2. 60 Bitcoin options with a strike price of 0 with no vesting period etc.
These two are de facto equivalents (in most cases), however if I understand you correctly the tax treatment would be different. 

Ad 1)
The bitcoin received would be subject to wage tax at a progressive rate at the date of receiving the bitcoin. The tax basis would be the fair market value of the bitcoin. However, any subsequent gain derived from the bitcoin may be exempt from capital gain tax if held for more than one year. 

Ad 2)
The bitcoin options received would not be subject to tax at the date of granting the options to the employee, but would only be taxed at the date the employee exercises the options. The gain (i.e. fair market value at the date of exercise - strike price) would be (completely) subject to wage tax. 
 

It seems that in some cases Ad 1) would be preferred, and in some cases Ad 2). If we believe the prices will only go up, Ad 1) seems more preferable considering that capital gain tax is subject to a lower rate (in most cases) than the wage tax rate. Ad 2) seems to be more preferable in case bitcoin will go down in value, as the wage tax will decrease compared to Ad 1). 

Thanks once again.

chocomel
 

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1 hour ago, chocomel said:

Ad 1) seems more preferable considering that capital gain tax is subject to a lower rate (in most cases) than the wage tax rate.

 

Wherever do you see the 25% flat tax rate Abgeltungsteuer (= capital gains tax) anywhere in these scenarios?

 

Any profit you make by selling a cryptocurrency is not a capital gain (= Einkünfte aus Kapitalvermögen), but "sonstige Einkünfte" (which is why they are declared in Anlage SO) which are taxed with your normal variable, i.e. progressive tax rate (the higher your yearly income, the higher the tax rate), i.e. with the same tax rate your salary is taxed with:

5a143d3e130ba_ekstDiagram(1).gif.f0640f3

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22 minutes ago, PandaMunich said:

 

Wherever do you see the 25% flat tax rate Abgeltungsteuer (= capital gains tax) anywhere in these scenarios?

 

Any profit you make by selling a cryptocurrency is not a capital gain (= Einkünfte aus Kapitalvermögen), but "sonstige Einkünfte" (which is why they are declared in Anlage SO) which are taxed with your normal variable, i.e. progressive tax rate (the higher your yearly income, the higher the tax rate), i.e. with the same tax rate your salary is taxed with:

5a143d3e130ba_ekstDiagram(1).gif.f0640f3


I think I confused something then. I always thought that bitcoins you did not receive from your employer were subject to capital gain tax (if sold within a 1 year period)? Rereading this thread just now I think it should also only be subject to income tax right?

I used to think that for example (which I understand is wrong):
On 1 July 2017 employee X receives 1 bitcoin worth 5000 EUR. = wage tax over 5000 EUR.

On 1 August 2017 employee X sells its bitcoin which is now worth 6000 EUR = Capital gain tax over (6000-5000) = 1000 EUR.


Instead, this should be:

On 1 July 2017 employee X receives 1 bitcoin worth 5000 EUR. = wage tax over 5000 EUR (to be withhold by employer).

On 1 August 2017 employee X sells its bitcoin which is now worth 6000 EUR = income tax over (6000-5000) = 1000 EUR (reported in Anlage SO).


Is the above correct?


Thanks!

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12 minutes ago, chocomel said:

So this should be:

On 1 July 2017 employee X receives 1 bitcoin worth 5000 EUR. = wage tax over 5000 EUR (to be withhold by employer).

On 1 August 2017 employee X sells its bitcoin which is now worth 6000 EUR = income tax over (6000-5000) = 1000 EUR (reported in Anlage SO).


Is the above correct?

 

Yes.

 

This was also explained on the first page of this thread:

On 22/06/2017, 17:18:53, PandaMunich said:

 

This is about foreign currency, which falls under §23 Absatz 1 Nr. 2 EStG: https://www.gesetze-im-internet.de/estg/__23.html

Any profit from selling a foreign currency is not subject to income tax if the currency is held for at least 1 year (= Spekulationsfrist = speculation period).

This Spekulationsfrist is extended to 10 years if you got interest on that foreign currency, e.g. if you stuck it into a Tagesgeld account.

Any profit you make by selling the foreign currency before the Spekulationsfrist is over is part of "sonstige Einkünfte" and is taxed at your personal income tax rate, with no cap at 25%.

 

What you describe is something else entirely, capital income (= Einkünfte aus Kapitalvermögen) from selling shares, which falls under §23 Absatz 2 Nr. 1 EStG: https://www.gesetze-im-internet.de/estg/__20.html

Capital income is taxed at 25% or at your personal income tax rate, whichever is lower.

 

 

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1 minute ago, PandaMunich said:

 

Yes.

 

This was also explained on the first page of this thread:

 

 


Excellent, thank you!

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1. If I only bought cryptocurrencies (e.g. EUR to BTC, then BTC to ETH, but never selling back to the coin i used to purchase) during the reporting year, do i still have to somehow put that in my tax form so that Finanzamt knows about my assets?

2. What if i relocated to a different EU country the following year? Where do i pay the taxes for the bitcoin that i did not sell yet? Or is it safer to just sell everything back to EUR before de-registering here, and paying all taxes to Germany?

 

Thanks! - i know this is tricky, i am also considering to contact a tax advisor

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  1. If you had read the entire thread, you would have known that even by not going via €, you still have to "pretend" to go via €, i.e. you always have to go via the reference currency € when exchanging one foreign currency for another.
    So you would have a profit to declare in Anlage SO if your exchange BTC to ETH took place within one year of buying the BTC:
    profit = (value of BTC on day you "sold" them to buy the ETH, in €) - (what you initially paid for the BTH, in €).
     
  2. If you did not sell them (but take care: as you saw above, exchanging also counts as "selling"!), then there is no profit to declare. The country you move to will get to tax that entire profit, if:
    a.) they have such a tax law, and
    b.) there really is a profit at the time you sell. 

 

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Thanks @PandaMunich! I did read the answers multiple times, only now have i understood the "pretending part".

 

Let me see i really got this: This means, the moment i sell ETH back to BTC, that is actually "selling ETH back to EUR worth", then "buying with that worth" the corresponding BTC, and declaring the difference in EUR-worth as profit, by buying and selling the ETH in less than 1 year. Whenever i sell those BTC (fifo rule applied), i pay profit again for the corresponding difference, since the day i got them by selling my eth.

Actually, each personal cryptocurrency "wallet" has its own fifo queue .. and every selling back <1yr is taxed (on corresponding altcoin-bitcoin-eur rate difference). And i also understand negative profits are carried.

 

Is there an official German Finanzamt approved source for daily euro rates to use? Exchange reports do not include btc-eur rate in altcoin transactions.

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Hi @PandaMunich. Thanks a lot for the really detailed explanations on Bitcoin tax regulations. It really helped clarify a lot of my doubts.

 

Now I still have a few questions that I felt confused about, especially after I also read this explanation by a law firm on Bitcoin taxes https://www.winheller.com/en/banking-finance-and-insurance-law/bitcoin-trading/bitcoin-and-tax.html I would be grateful if you could help answer them:

 

1. It is stated in the article and also in the law section 23 that every person has a "EUR 600 allowance" for "private sales transactions". However, does that mean I should consider all other sources of private sales transactions, e.g. reselling goods (only when I actually make profits on those goods), and then I will be able to deduce 600 of income from all those money added together? I don't think one normally makes profits by selling goods that they already bought and used before though...

 

2. If I understood it correctly, any income I get from the sales of cryptocurrency would also be added together with my other income when I calculate how much tax I should pay for the calendar year. For example, if I made EUR 20000 from cryptos, and EUR 40000 from my job (after deducting the social security contributions, if I am an employee), then the total amount of income for me to declare tax for would be 40000 + 20000 - 600 (allowance), and the total tax would be EUR 17.377,96 according to the calculation at http://www.parmentier.de/steuer/index.php?site=tax-income Suppose the company has already withheld tax on the salary part, then I would still need to pay taxes on the crypto part by myself. Is this understanding correct?

 

And if I actually only earned EUR 3000 during the year, and I made EUR 4000 by crypto, making my whole earnings EUR 7000, then since 6400 (minus 600 allowance) < 7664, I actually won't have to pay any taxes, even though I indeed realized gains on crypto, correct? Do I still have to file anything with the tax authority in this case?

 

3. I also performed margin trading on cryptocurrencies on Kraken and in some of those trades I lost money while in some others I made money. How would those trades be classified then? If I made a profit, would those profits be considered in the same category as "private sales transactions"? Or would they just be simply classified as personal income then.

 

If I lost more money than I gained, can I then use those losses to offset the profits I made by trading "real" cryptocurrencies? If so, can I only use the margin trades performed on BTC to offset profits I made on BTC, and not the profits I made on any other crypto? I guess if margin trading would be classified as "personal income", then even if I lost money, I won't be able to use that to offset any of my "private sales transaction" losses?

 

4. This might be a bit of a too specialized question, so feel free to ignore it. I bought into a mutual fund-like product on a platform called ICONOMI https://www.iconomi.net Basically the idea is to buy one index which tracks various different underlying cryptocurrencies with different weights https://www.iconomi.net/dashboard/#/INDEX. The transactions are normally carried out with ETH, i.e. I buy an index with ETH and sell an index in exchange for ETH. However I'm confused about the tax implications of this. If I can consider an index as its own type of cryptocurrency, then the problem would be much simpler. If not, then I don't know how I would then proceed to calculate the tax duties if I were to eventually cash out on the index by selling the ETH I get from selling the index.

 

@W.A.Shahani Kraken provides you with a detailed log of your every transaction on the "History" tab that you can export and download AFAIK. Maybe you'll need to look up the EUR reference price on that day of the transaction, if you have a crypto-to-crypto transaction though

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On 11/26/2017, 9:27:42, mihneasim said:

Let me see i really got this: This means, the moment i sell ETH back to BTC, that is actually "selling ETH back to EUR worth", then "buying with that worth" the corresponding BTC, and declaring the difference in EUR-worth as profit, by buying and selling the ETH in less than 1 year. Whenever i sell those BTC (fifo rule applied), i pay profit again for the corresponding difference, since the day i got them by selling my eth.

Actually, each personal cryptocurrency "wallet" has its own fifo queue .. and every selling back <1yr is taxed (on corresponding altcoin-bitcoin-eur rate difference). And i also understand negative profits are carried.

 

Yes.

 

On 11/26/2017, 9:27:42, mihneasim said:

Is there an official German Finanzamt approved source for daily euro rates to use? Exchange reports do not include btc-eur rate in altcoin transactions.

 

No, so just be consistent in the source you use (do print-outs to document the exchange rate) and it will be alright.

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48 minutes ago, SZJX said:

1. It is stated in the article and also in the law section 23 that every person has a "EUR 600 allowance" for "private sales transactions". However, does that mean I should consider all other sources of private sales transactions, e.g. reselling goods (only when I actually make profits on those goods), and then I will be able to deduce 600 of income from all those money added together? I don't think one normally makes profits by selling goods that they already bought and used before though...

 

No, since the 600€ are a Freigrenze, not a Freibetrag like you assume.

Being a Freigrenze means that if your profit is only 1 cent above 600, e.g. 600.10€, you have to tax 600.01 extra income. Only if your total profit that calendar year from all private sales is 600€ or less do you not have to declare them since they are tax free.

There are lot of collection items that you might manage to sell at a profit, ebay abounds with them.

 

51 minutes ago, SZJX said:

2. If I understood it correctly, any income I get from the sales of cryptocurrency would also be added together with my other income when I calculate how much tax I should pay for the calendar year. For example, if I made EUR 20000 from cryptos, and EUR 40000 from my job (after deducting the social security contributions, if I am an employee), then the total amount of income for me to declare tax for would be 40000 + 20000 - 600 (allowance), and the total tax would be EUR 17.377,96 according to the calculation at http://www.parmentier.de/steuer/index.php?site=tax-income Suppose the company has already withheld tax on the salary part, then I would still need to pay taxes on the crypto part by myself. Is this understanding correct?

 

Correct except for the part where you deduct the 600€, which will not happen since all your profit from the private sale is taxable income, since the 600€ are only a Freigrenze.

 

52 minutes ago, SZJX said:

And if I actually only earned EUR 3000 during the year, and I made EUR 4000 by crypto, making my whole earnings EUR 7000, then since 6400 (minus 600 allowance) < 7664, I actually won't have to pay any taxes, even though I indeed realized gains on crypto, correct? Do I still have to file anything with the tax authority in this case?

 

Yes, except that again the 600€ are not deducted and the fact that the tax-free amount is 8,820€ in 2017 (and will be 9,000€ in 2018): https://de.wikipedia.org/wiki/Grundfreibetrag_(Deutschland)

Yes, you still have to do a tax return but will not end up paying any tax.

 

54 minutes ago, SZJX said:

3. I also performed margin trading on cryptocurrencies on Kraken and in some of those trades I lost money while in some others I made money. How would those trades be classified then? If I made a profit, would those profits be considered in the same category as "private sales transactions"? Or would they just be simply classified as personal income then.

 

At the moment, profit from options is regarded as capital income, even if these are options on crypto currency. 

There may well be a change in that policy once the BMF issues a letter on that topic, but at the moment you have to declare that profit not in Anlage SO like profit from selling crypto currency itself, but in Anlage KAP.

This means that there is 801€ Sparer-Freibetrag (yes, in this case the first 801€ are always tax-free), and would be taxed with flat rate 25% Abgeltungsteuer (or with your personal income tax rate should that be lower than 25%).

 

Details in here:

1 hour ago, SZJX said:

If I lost more money than I gained, can I then use those losses to offset the profits I made by trading "real" cryptocurrencies? If so, can I only use the margin trades performed on BTC to offset profits I made on BTC, and not the profits I made on any other crypto? I guess if margin trading would be classified as "personal income", then even if I lost money, I won't be able to use that to offset any of my "private sales transaction" losses?

 

No, since these losses are in the Aktien/shares-"pot" of the capital income.

So you could use these losses for offsetting profit you made from selling shares, but they have no connection at all to the profit from selling "real" cryptocurrencies.

 

1 hour ago, SZJX said:

4. This might be a bit of a too specialized question, so feel free to ignore it. I bought into a mutual fund-like product on a platform called ICONOMI https://www.iconomi.net Basically the idea is to buy one index which tracks various different underlying cryptocurrencies with different weights https://www.iconomi.net/dashboard/#/INDEX. The transactions are normally carried out with ETH, i.e. I buy an index with ETH and sell an index in exchange for ETH. However I'm confused about the tax implications of this. If I can consider an index as its own type of cryptocurrency, then the problem would be much simpler. If not, then I don't know how I would then proceed to calculate the tax duties if I were to eventually cash out on the index by selling the ETH I get from selling the index.

 

I would simply treat it as a fund, and there the way they are taxed will change in 2018:

The BMF will at some moment in the future issue a letter with instructions on how to treat these "new" investment types, until then you just have to be transparent and consistent in the way you declare it, and the Finanzamt will be ok with it.

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