Crypto was likely one of the hottest assets in the market in recent years – even more so than real estate. So, congratulations on getting into the business in time, and getting out when it soared!
The question remains what potential tax pitfalls could be on the German end – after all art. 21 of the US-German tax treaty qualifies it as “other income” and assigns the right to tax to Germany.
Under German tax law, there are essentially three key questions which you need to ask yourself:
- Did I hold it only privately for more than 1 year without doing anything with it?
- Did I use my crypto coins to create additional income from it (e.g. lending)?
- Did I buy and sell crypto like mad – almost like a professional?
Case 1 means that any profits you made after the 1-year holding period, are completely tax-irrelevant on the German end. Also, there is no ceiling on the tax-exemption, neither in percent, nor in absolute terms. €1 is as tax-free as €1,000,000. The flip side being that any loss you have after one year will likewise be tax-irrelevant. For this reason, the standard advice is like this:
- when in the green, sell after one year
- when in the red, sell before one year and immediately buy back – this way you lock in on the loss without losing your actual asset base.
Keep in mind though that any loss from crypto sales, can only be off-set with profits from crypto sales.
Case 2 means that you can still pocket your crypto gains tax-free but the holding period is now 10-yrs, not 1-year anymore.
Case 3 means that you will need to treat your crypto assets like business assets. The profits and losses which you generate from them are business profits and losses.
We hope the above helps shed some light on potential tax consequences on crypto sales – obviously there are grey areas which need to be assessed, but this is what the taxperts are there for! Please let us know if crypto is an area where you would need our support.
