Recent tax regulations regarding crypto transactions

In the past years the amendment of the Personal Income Tax Act has brought some changes to the taxation of income realized from crypto transactions. This income is subject to 15% personal income tax and with the change in laws, the tax administration of these transactions became much easier. Even though the rules are simple, if one does not pay attention, the tax burden might be much higher than 15%.

Generally, an investment shall only be a part of the tax declaration of a natural person, if the person gains income after the investment. This means that the National Tax Authority has information only about these transactions once the investor gained income, or if the person wants to offset the losses incurred in the given year, as losses can also be disclosed.

In Hungary crypto assets are not taxed as long as they stay in the form of cryptocurrency. This means that changing Bitcoin to an altcoin will not have to be the part of the tax declaration. This is true as long as the capital gain stays in the form of any cryptocurrency. Whenever the cryptocurrency is converted back to fiat currency (e.g. any form of currency that was issued by a national or central bank, such as Forints, Euro or Dollar) then will the transaction be subject to the income tax.

However, if one does not state the purchase of such crypto asset in the tax declaration of the year the cryptocurrency was purchased, it will be taxed as a whole, thus making the tax burden much higher. If we take an example, if one bought 1 BTC at USD 10,000 and sells it at USD 20,000 the 15% income tax shall be paid after the USD 10,000 gain, which is USD 1,500. However, if the person does not disclose the purchase in the tax declaration, the transaction will be taxed after the sale price, which is USD 20,000 in the recent example. This means that the tax burden would be 30%, two times higher.

To avoid this, it is advisable to disclose losses and gains incurred upon crypto transactions to be able to offset losses against gains in the given year. It is important that there is an EU level legislation to be accepted in the near future, that would in theory link every crypto wallet to a natural person, thus collecting taxes after transactions will be much easier and faster.