When it comes to tax-loss harvesting and cryptocurrencies, the rules aren’t the same as those for stocks. Under current U.S. federal law, the wash sale rule doesn’t apply to cryptocurrency—but it could change in the future.
What the IRS Says Today
The IRS treats cryptocurrencies (and other “digital assets”) as property, not securities. The wash sale rule prevents you from deducting a loss if you sell a security at a loss, then repurchase the same or substantially identical security within 30 days. This rule, however, only applies to securities, not property.
Since crypto is considered property under current law, the wash sale rule (codified in IRC § 1091) doesn’t apply to it.
Practical Advice for Investors—For Now
If you realize a loss on crypto, you can claim that loss—to offset other gains, for example. You’re free to repurchase the same (or similar) crypto immediately; there is currently no 30-day waiting period as there is with securities.
This “loophole” has made crypto especially attractive for tax-loss harvesting, which is difficult to do with stocks, ETFs, or other securities.
What to Watch Out For
While current law classifies crypto as property, some lawmakers and tax-policy advocates have proposed extending the wash sale rules to digital assets and effectively closing this loophole. Crypto trades are getting more scrutiny now, thanks to changes in how tax is reported—specifically broker reporting rules in the Infrastructure Investment and Jobs Act.
If the legislation were to change, it would most likely apply to future trades only. Past transactions under the current rules would remain valid.
It’s wise to keep track of developments in this area, as the changes could impact your crypto tax strategy. The best thing you can do is consult a tax professional.
Talk Crypto Tax Strategies with a Reliable Tax Attorney
If you’re dealing with crypto investments and want to make sure you’re maximizing your tax-loss harvesting, or you’re concerned about upcoming regulatory changes, the tax attorneys at Gabaie & Associates, LLC can provide you with a personalized tax review. We’ll help you make sure your digital asset strategy stays ahead of the curve. Call (410) 358-1500 or fill out our contact form to get started.
