Terra Luna (LUNA/LUNC) Taxes in the US – Crash Losses & Reporting

The Terra Luna collapse in May 2022 wiped out billions. If you lost money on LUNA, LUNC, or UST, you have significant tax losses to claim. Here is how.

What Happened: The Terra Collapse

In May 2022, Terra's algorithmic stablecoin UST lost its peg. LUNA hyperinflated and crashed from ~$80 to near zero within days. Terra 2.0 launched with new LUNA token; the original became LUNA Classic (LUNC).

Realizing Your LUNA/LUNC Loss

To claim a tax loss, you must realize it by selling or disposing of the asset. Options for worthless LUNA Classic:

• Sell on exchange: Even at $0.0001, a sale realizes the loss
• Send to burn address: May constitute an abandonment (taxable disposal)
• Exchange delisting: If your exchange delisted LUNA and credited $0, this may be a forced disposal

UST Stablecoin Loss

UST was purchased as a $1 stablecoin. If you paid $1 per UST and it crashed to near zero:

• Selling UST at its current value realizes a capital loss
• Loss = cost basis ($1/UST × quantity) − proceeds (near zero)
• These are typically short-term losses if held under 1 year

Anchor Protocol Income (Prior to Collapse)

Anchor Protocol paid ~20% APY on UST deposits. This yield was taxable as ordinary income when received. If you reported Anchor income in 2021-2022 and then lost the principal in the collapse, you have both taxable income (already paid) and a capital loss (on the UST).

Terra 2.0 LUNA Airdrop

Terra 2.0 airdropped new LUNA tokens to original LUNA and UST holders. This airdrop is taxable as ordinary income at fair market value when received. Your cost basis in new LUNA = FMV at airdrop date.

Reporting LUNA/LUNC Losses

1. Document original purchase price (cost basis) for all LUNA/LUNC/UST
2. Record the disposal date and proceeds (even if near zero)
3. Report each disposal on Form 8949
4. Net losses offset other capital gains; up to $3,000 offsets ordinary income annually
5. Excess carries forward indefinitely

Disclaimer: This article is for general informational purposes only and does not constitute tax advice. For individual tax advice, consult a licensed tax professional.