Offsetting Crypto Losses Against Capital Gains: What Section 92 Allows

Yes. The Israel Tax Authority treats virtual currency as an "asset" as defined in Section 88 of the Income Tax Ordinance, and therefore its sale is subject to capital gains tax. This has been its position since Income Tax Circular 05/2018 of January 2018. For the same reason, a loss from the sale of Bitcoin or any other virtual currency constitutes a capital loss, and the offsetting of crypto losses is governed by Section 92 of the Ordinance: against capital gains and real estate appreciation (betterment) in the same tax year, with any remaining balance carried forward to subsequent years.

This rule has been in effect since 2018. The Central District Court confirmed the classification of Bitcoin as an asset in the Koppel case (Tax Appeal 11503-05-16, May 19, 2019), and according to the 2024 State Comptroller's Report, no contradictory ruling had been issued by that time.

A capital loss incurred in the tax year is first offset shekel-for-shekel against real capital gains. If a balance remains, each shekel of that balance is offset against NIS 3.5 of taxable inflationary surplus (Section 92(a)(1)). For this purpose, betterment from the sale of real estate is treated as a capital gain, meaning crypto losses can be offset against gains from the sale of shares as well as against taxable betterment from the sale of real estate.

A capital loss cannot be offset against salary or business income. The additional offset against interest and dividends, set out in Section 92(a)(4), applies only to losses from the sale of securities.

A loss that was not utilized in the same year carries forward to subsequent years, one after another, and is offset against capital gains only (Section 92(b)). There is no time limit for this. The carried-forward loss retains its nominal value without CPI indexation, and it cannot be offset retroactively against gains from a year preceding the loss.

The loss arises at the time of sale. A coin that has declined in value but is still held in a wallet has not generated a loss for tax purposes. According to Reportable Position 91/2021, the exchange of one virtual currency for another also constitutes a sale, meaning every such exchange triggers a gain or loss at the time it is executed.

To carry a loss forward to subsequent years, a tax return must be filed for the tax year in which the loss was incurred (Section 92(b)). Income Tax Circular 10/2025 adds that a carried-forward loss may be offset only if all offset options in prior years have first been exhausted. The assessing officer may also decline to recognize a loss from a sale that was designed to achieve an improper tax reduction.

The situs of a virtual currency asset has not yet been established by legislation, as noted by the State Comptroller in the 2024 Report. This has implications for the order of offset, because a loss from the sale of an asset outside Israel must first be offset against capital gains from outside Israel (Section 92(a)(3)). When a taxpayer's file also includes foreign-sourced gains, it is advisable to verify this order before filing the return.

When the activity rises to the level of a business, the income derived from it is classified as ordinary (revenue) income rather than a capital gain (Circular 05/2018). The classification is determined according to the tests established in case law, including the frequency of transactions, their volume, the use of credit financing, and the investor's expertise. According to the Circular, income from mining is business income.

The classification affects both the tax rate and the offset rules. An individual's real capital gain is taxed at 25% (Section 91), while business income is taxed at the marginal tax rate, up to 47%. A loss from business activity is offset under the rules governing business losses, not under Section 92.

Both types of income are subject to the surtax (Section 121B). In 2026, the surtax is 3% on taxable income exceeding NIS 721,560. From 2025, an additional 2% applies to taxable income from capital sources above the same threshold, bringing the total additional tax on high capital gains to 5%. Offsetting a loss reduces taxable income and can therefore also reduce the surtax liability.

According to Circular 05/2018, anyone reporting the sale of virtual currency must retain documents substantiating the transactions. A sale must be reported within 30 days on Form 1399 and subsequently in the annual return. Before filing the return, it is advisable to compile:

1. Complete transaction reports from every exchange and wallet, including the date, quantity, exchange rate, and fee for each purchase, sale, and conversion.

2. A reconciliation between bank account transfers and purchases, showing the source of funds and the acquisition cost.

3. A calculation of the gain or loss for each sale and conversion separately.

4. A list of carried-forward losses from prior years, together with the returns in which they were reported.

The offsetting of losses in crypto portfolios is handled at our firm by Adv. and CPA Shlomi Vaknin. An explanation of the tax calculation on gains and the classification of activity can be found on the Taxation of Crypto and Bitcoin Gains.