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CryptoTaxIQ

Crypto Wash Sale Rule — Status 2025

The wash sale rule still does not apply to cryptocurrency in 2025. This creates a tax-loss-harvesting opportunity that is unavailable for traditional securities. Here's how it works, why Congress keeps trying to close it, and how to use it correctly.

TL;DR

  • ✅ Sell crypto at a loss, re-buy same token immediately → loss is fully deductible
  • ❌ Same strategy with stocks/ETFs → loss disallowed under §1091, basis transferred to new lot
  • 🔄 Up to $3,000 net capital loss offsets ordinary income; remainder carries forward indefinitely
  • ⏳ Multiple bills (since 2021) would extend wash sale to crypto; none enacted as of April 2026

What the wash sale rule actually says

IRC §1091 disallows a loss deduction if you (or a related party) acquire substantially identical stock or securities within 30 days before or after the loss sale.

Key word: "stock or securities." The IRS has not classified cryptocurrency as a security for wash sale purposes. This is consistent with the IRS's position in Notice 2014-21 that crypto is property, not stock or security.

How to harvest crypto losses (legally) in 2025

  1. Identify positions with embedded losses on December 28–30 (still within tax year)
  2. Sell to realize the loss. Document the disposal time + proceeds + cost basis.
  3. Re-buy the same token immediately — even seconds later is fine
  4. Report the loss on Form 8949 → Schedule D in your 2025 tax return
  5. Net up to $3,000 against ordinary income; carry forward the rest

Worked example — harvesting a $20k crypto loss

You bought 5 ETH at $4,500/each ($22,500 total) in March 2024. ETH is now $2,000 ($10,000 total). You believe in ETH long-term.

  • Sell 5 ETH on December 28, 2025 for $10,000. Realize $12,500 capital loss.
  • Buy back 5 ETH on December 28, 2025 at $2,000 ($10,000 total).
  • You hold the same 5 ETH economically, but with a fresh $10,000 cost basis.
  • The $12,500 loss offsets capital gains, then up to $3,000 of ordinary income, then carries forward.

At a 24% ordinary-income marginal rate + 15% LT capital gains rate (assuming you have other capital gains to offset), this maneuver saves roughly $3,000–$5,000 in tax.

What you cannot do, even without wash sale

  • Sham sales. Selling and re-buying for any price other than current FMV looks like fraud, especially between related parties.
  • Pre-arranged round-trips. Selling to an associate who pre-agreed to sell back to you. The substance-over-form doctrine still applies.
  • Cross-account between you and your spouse in joint-filing situations — the IRS aggregates ownership for "related party" rules even without §1091.

Pending legislation — what could change

Several bills have proposed extending §1091 to digital assets:

  • Build Back Better Act (2021): would have extended wash sale; passed House, died in Senate
  • Lummis-Gillibrand Responsible Financial Innovation Act versions 2022 and 2024 would extend
  • SECURE 3.0 (proposed 2024): attached crypto wash sale provisions; deferred

As of April 2026, no enacted law has changed the position. Most legislative analysts assess 2026 enactment probability at 25–35%, dependent on congressional composition and any major crypto market event prompting reform.

What software does for you

Both Koinly and CoinLedger include tax-loss-harvesting tools that flag positions with embedded losses, and produce a list of "harvest these for X tax savings before year-end" recommendations.

Koinly's Harvest tool ranks positions by realizable loss × applicable marginal rate. If wash sale is enacted retroactively, these tools update automatically — but the historic 2025 returns remain protected.

Don't confuse wash sale with these similar rules

  • Constructive sale rule (§1259): applies to short-against-the-box. Different mechanism.
  • Substance-over-form doctrine: always applies. Round-trip-trades with no economic substance can be unwound by IRS.
  • Anti-abuse rules (§7701): general anti-avoidance.

Practical advice: real economic risk in the position between sale and re-buy is your shield. If ETH dropped 5% during the 30 minutes between your sell and re-buy, you took real risk — that's a real disposal. If you sold and re-bought in the same block at the same price, an aggressive auditor might argue the substance.