Some wealth managers are helping clients take advantage of a loophole to use crypto losses to offset taxes on other assets

• About 14% of financial advisors are recommending their clients invest in cryptocurrencies.
• Cryptocurrency investments can take advantage of a tax loophole legislators are working to close.
• Even more wealth managers are planning to recommend investing in crypto, a report found.

Wealth managers are helping ease their clients into the cryptocurrency market by helping them tap into a loophole that uses losses to offset taxes elsewhere in their portfolios, The Wall Street Journal reported.

Rules against "wash sales" prevent investors from using the loophole with their stock holdings, but because cryptocurrencies are considered property by the federal government, the regulation doesn't apply the same way, the Journal report said.

One financial advisor told the Journal he's "taking advantage of the volatility in crypto" to increase portfolio returns. Another advisor said his client bought $100,000 worth of bitcoin and ether and will use his $30,000 in losses to offset taxes on profits in his portfolio, and all the while, his crypto investment has jumped 10%.

A June report from the Financial Planning Association showed more and more advisors are recommending cryptocurrencies to their clients. Now, 14% of wealth managers are endorsing digital assets to investors - a jump from 1% in both 2019 and 2020. In the future, even more financial advisors are looking to jump on board, the report said.

The loophole, however, could disappear if legislators pass new tax provisions that would add cryptocurrencies to wash-sale rules, in an effort to raise billions of tax dollars, Bloomberg reported previously. Legislators also wrote a provision requiring crypto firms to provide user information so as to increase tax compliance and raise an estimated $28 billion over the next 10 years. But, Bloomberg reported that crypto advocates said firms can't collect such information.