Cryptocurrency in your tax returns: Where Gains, Losses and Pledges Go

Cryptocurrency Tax Filing Guidelines: When to File, How to Fill in and Common Misunderstandings

You must declare cryptocurrency on the annual income tax return (Einkommensteuererklärung) if you sell, exchange or spend cryptocurrency for a holding period of no more than twelve months, and the total proceeds from private disposal transactions throughout the year exceed 1,000 euros. In addition, staking and loan income must also be declared. If you hold it for more than one year before selling it, no declaration is required. Regardless of whether it is profitable or not, it is recommended to declare losses, otherwise it will not be possible to take advantage of its tax deduction function.

1. When must I declare cryptocurrencies?

Tax liability is based on the transaction itself, not on your account balance. The following four circumstances trigger the declaration obligation:

• Short-term sales: In twelve months, the total gain from all private disposal transactions for the year exceeded EUR 1,000.
• Currency conversion: Exchange one cryptocurrency for another cryptocurrency during this time window, even if no euro transaction is involved.
• Pledge, loan or mining income: Annual exemption for annual income exceeding 256 euros.
• Losses: If you want to offset these losses with future gains, you must declare them.

There is no need to declare the following: purchase, simple possession, transfer of funds between your own wallets, or sale after holding for more than twelve months. These transactions are not tax significant and the tax authorities do not require registration.

2. Which schedule should be filled in for various types of transactions?

Classification is based on the nature of the transaction rather than the exchange platform or currency type.

Schedule SO (Anlage SO) is the main fill-in area

The schedule is titled "Other Income"(Sonstige Einkünfte) and contains two separate parts, both of which may apply to cryptocurrencies:

1. Private disposal transactions (Private Veräußerungsgeschäfte): covers the sale, conversion and payment of cryptocurrencies with a holding period of less than twelve months. For each transaction, you need to enter the acquisition date, disposal date, disposal amount, and acquisition cost. Losses are also entered into this section and marked as negative.
2. Service revenue portion (Sonstige Einkünfte aus Dienstleistungen): covers pledge income, loan interest, airdrops earned for providing certain services (Airdrops), and incidental mining income. The calculation is based on the market value of the income when it arrives.

Schedule KAP (Kapitaleinkünfte)

This schedule is only covered if you hold a specific financial product. For example, users who hold Bitcoin through ETP or ETN without physical delivery rights may have their gains classified as capital gains. The specific classification depends on the product structure, and there is no final conclusion yet.

Note: Table line numbers may change from year to year. Following guidelines for fixed line numbers in previous years may result in data being filled in wrong fields. Please rely on the chapter title and follow the input wizard in the ELSTER system.

3. Complete the tax declaration in four steps

The correct order can save a lot of work: collect data first, then calculate profits and losses, and finally enter it into the system.

Step 1: Export transaction records

Export complete historical records from each exchange and wallet, not just annual summaries. You need the date, time, quantity and price of each transaction. Exchanges may delete historical records or even shut down platforms, so this is the most critical step.

Step 2: Organize transaction data

Separate sale and redemption transactions from pledge, loan and airdrop transactions. Although these two sets of data are filled in the attached table SO, they belong to different sub-columns and have different calculation methods.

Step 3: Calculate holding period and profit and loss

For each position sold, check whether the acquisition date to the sale date exceed twelve months. If the same currency is purchased multiple times, the provisions of a letter from the German Federal Ministry of Finance dated March 6, 2025 apply: Individual identification will be used first; if this cannot be achieved, the "first-in, first-out" principle will be followed (that is, the coin purchased earliest is regarded as the first to be sold).

Step 4: Enter application information

Fill the summary data into the attached table SO. Although there is no need to submit a detailed list, detailed records must be kept for random inspections by the tax bureau at any time. When large amounts are involved, many tax bureaus will proactively request details.

4. Important tips on loss declarations

Many people easily ignore loss declarations. Losses from the sale of cryptocurrencies with a holding period of less than twelve months can reduce the tax burden, but only if it is stated in the return form. The tax bureau will only establish a loss carry-forward mechanism when it sees a loss in the return.

If you skip the declaration of a loss year because you do not have to pay taxes in that year, you will be giving up the right to deduct future earnings. These losses can only be used to offset gains from other private disposal transactions during the same year, and cannot be used to offset wage income or stock gains. The remaining unoffset losses may be carried forward to the next year or carried forward indefinitely.

5. What will happen if you do not declare?

Starting from January 1, 2026, in accordance with the EU DAC8 Directive, all centralized cryptocurrency service providers will be required to report data to tax authorities. The tax department can obtain your account information on the exchange without asking you.

Failure to declare a taxable transaction may constitute tax evasion under Section 370 of the German Tax Law, with a prosecution period of ten years. Although voluntary disclosure (Selbstanzeige) is possible, it has strict conditions: it must be complete and must be submitted before the violation is discovered. The most honest way to do this is to make a full declaration. If a complete record cannot be compiled, it should be explained truthfully and estimated rather than omitting transactions.

VI. Deadline

• Self-application: The 2026 application form must be submitted before July 31, 2027.
• Entrusted tax consultant to declare: The deadline is extended to the end of February 2028.
• Non-mandatory but voluntary declaration: The period is four years.

For cryptocurrency investors, the declaration obligation is easy to meet: as long as the sideline income exceeds 410 euros, a declaration must be submitted. Gains from private disposal transactions are included.

VII. Frequently Asked Questions (FAQ)

Q: Do I have to declare cryptocurrency in the tax form?
A: Yes. If it is sold, redeemed or paid within twelve months, and the total proceeds from private disposal transactions exceed € 1,000 throughout the year, it must be declared. Pledge and loan income with annual income exceeding 256 euros must also be declared.

Q: Where are the cryptocurrency gains filled in?
A: "Private disposal transactions" section of Schedule SO. Pledge and loan income are filled in the "Service Income" section of the same schedule.

Q: Where should the cryptocurrency losses be filled?
A: The same position as the proceeds, i.e. the "Private Disposition Transactions" section of Schedule SO. If you do not declare, the tax bureau will not recognize the loss carried forward.

Q: If I have held it for more than one year, do I need to declare it?
A: No. Once the twelve-month period exceeds, the income is tax-exempt and does not need to be declared.

Q: Do I have to list every transaction?
A: Only summary data needs to be filled in in the application form. However, if required by the tax department, you must be able to provide a detailed list.

Q: What should I do if assets are lost due to the bankruptcy of the exchange?
A: Default is not a disposal. The Taxation Department only recognizes the full loss under very narrow conditions and recommends seeking professional advice on individual cases.

Q: Do I need a tax tool?
A: If there are few transactions, spreadsheets will do the job. However, manual tracking is very difficult for users of fixed investment plans, frequent conversions or multiple exchanges, and it is recommended to use a dedicated cryptocurrency tax tool.

References

• Letter from the German Federal Ministry of Finance dated March 6, 2025: Regarding the income tax treatment of specific crypto assets (Document No. IVC1-S2256/00042/064/043)
• Articles 23 and 22 (3) of the German Income Tax Act
• Sections 370 (tax evasion) and 371 (voluntary disclosure) of the German Tax Code
• European Union Directive (EU) 2023/2226 (DAC8): Reporting Obligations of Cryptocurrency Service Providers from January 1, 2026