How is Crypto Margin Trading Taxed?
Got gains or losses from margin trading? Your tax office will want a cut. Learn all about crypto tax on margin trading in our guide.
You'll pay tax on any realized profits from crypto margin trading.
Generally, profits are classed as capital gains and taxed as such.
For professional traders, Income Tax may apply instead.
You can offset losses, interest, and fees to reduce your tax bill.
Do you pay tax on crypto margin trading?
Yes. You pay tax on crypto margin trading.
At Koinly, we’ve seen that even though most tax offices haven’t released specific guidance on crypto margin trading, that doesn’t mean you can rest easy. There’s already plenty of guidance on margin trading in traditional markets, along with existing crypto tax rules. So in most cases, the tax treatment can be pieced together from what’s already out there.
It goes without saying that you should speak to an experienced crypto accountant for specific advice on your financial circumstances and tax liability.
How is crypto margin trading taxed?
Profits from crypto margin trading are viewed as capital gains, and it's only at the point you close your position that you'll realize a gain or loss.
In most instances, for individual investors, realized gains from margin trading will be subject to Capital Gains Tax, while losses may be offset. Professional traders may be subject to Income Tax instead.
Of course, that's not the only transaction involved, so let's cover them all in more detail.
Capital gains and losses from crypto margin trading
It's only at the point you realize a gain or loss from crypto margin trading that you'll have a potentially taxable event.
Gains from margin trading are generally treated in the same manner as capital gains from spot trading or other investments. So generally speaking, the same short-term and long-term tax rates will apply, although there may be specific rules for specific products.
For example, gains from crypto futures are treated slightly differently in the US. If you're seeking more detailed information on how crypto margin trading impacts your taxes, our crypto taxes guide provides comprehensive insights and guidelines.
As with losses from spot trading, you can generally offset your losses against any gains of a similar nature. So you can use any losses from crypto margin trading to reduce your overall tax liability in most countries.
It's also important to note that those trading as professionals may be taxed differently.
Read next: How are crypto futures taxed?
What about crypto margin trading fees?
In most instances, fees relating to crypto margin trading are deductible. So any fee paid to open your position can be considered when calculating your cost basis and subsequent capital gain or loss when you've closed the position.
As well as this, margin interest fees may also be tax-deductible depending on where you live and how you're viewed as a trader.
Read next: How are Crypto Options Taxed?
Are margin calls taxed?
No, like when you open a position, maintaining your position due to a margin call by adding more collateral is not a taxable event as you haven't disposed of your asset.
How is forced liquidation in margin trading taxed?
If your position is liquidated, then this will generally be viewed as a disposal from a tax perspective, as though you had sold the asset, and you'll need to calculate any loss or gain.
Read next: Bitcoin Options and How to Trade Them
What about tax on crypto margin lending?
When users lend cryptocurrency to margin trading platforms, they earn interest on their deposits.
Unfortunately the team at Koinly has seen how this interest is generally considered taxable income and would be reported on your annual tax return.
Does Koinly support margin trading?
Yes. Koinly is a crypto tax calculator that calculates your crypto taxes for you, including gains and losses from margin trades, as well as any margin interest fees and more.
All you need to do is connect the exchange you're using to Koinly, and it'll do the rest, including:
Imports all your trades, including margin trades and related fees
Converts your transactions into your country’s currency at fair market value
Deciphers which of your transactions are taxable and which are not
Calculates your capital gains or losses, as well as fees that may be tax-deductible, like margin interest fees
Helps you submit a clean and accurate report to your tax office
Want more? Read our crypto margin trading guide or our crypto tax guides for local tax advice.
