Been tax loss harvesting BTC and ETH pretty aggressively. Sell at a loss, wait a day, rebuy to maintain exposure.
My accountant mentioned the wash sale rule. I thought crypto was exempt from this since it's property not securities? Anyone know the actual IRS position on this in 2025?
As of now (April 2025), the wash sale rule under IRC Section 1091 technically does NOT apply to cryptocurrency because crypto is classified as property, not a security.
However - and this is critical - there's pending legislation that would change this. The Infrastructure Investment and Jobs Act included provisions to apply wash sale rules to digital assets starting in 2026 tax year. So you have a window, but it's closing.
Wait so I can still harvest losses in 2025? I sold SOL at a $15k loss last week and bought back 2 days later. That's legit for my 2025 taxes?
@DeFiHodler - Yes, under current law that's permissible. The wash sale rule only applies to stocks and securities. IRS Notice 2014-21 classified crypto as property, not securities.
But here's what you need to understand about crypto tax loss harvesting strategies:
This is super helpful. So I can harvest losses now but should prepare for the rules to change in 2026.
What about trading between similar coins? Like if I sell ETH at a loss and immediately buy a different L1 like AVAX to maintain crypto exposure - that should definitely be fine right?
I've been doing exactly this. Sell BTC losses, rotate into ETH. Sell ETH losses, rotate into SOL. Document everything.
Even when wash sale rules apply next year, different cryptos shouldn't be "substantially identical." ETH and BTC are fundamentally different assets with different use cases, unlike say Ford stock vs GM stock.
@BlockchainNate is mostly right but I want to add some caution. The IRS hasn't issued guidance on what "substantially identical" means for crypto yet.
For securities, the standard is whether the investments have the same value and yield the same rights. BTC vs ETH is likely different enough. But what about:
These could be considered substantially identical. We won't know until IRS issues guidance or case law develops. Conservative approach: wait 31 days even when rotating between similar assets.
What about using the losses to offset gains from other crypto sales? I took some profits on meme coins earlier this year (up $40k). If I harvest losses from my BTC position (down $25k) can I use that to reduce my tax bill?
@KellyStrat - Absolutely. Crypto capital losses offset crypto capital gains. In your scenario:
If you have more losses than gains, you can deduct up to $3,000 against ordinary income per year, and carry forward the rest to future years.
This is why tax loss harvesting is so powerful - you're not avoiding taxes, you're timing them strategically and potentially converting short-term capital gains (taxed at ordinary income rates) to long-term gains (lower rates) by holding repurchased assets longer.
This has been incredibly useful. My strategy going forward:
Appreciate all the expert input here.
One more thing nobody mentioned - if you're trading on exchanges, be aware that some don't provide proper tax forms. Coinbase gives you a 1099, but most DEXs obviously don't.
Also watch out for wash sales WITHIN crypto. Even though the rule doesn't apply legally, if you're constantly buying and selling the same asset, you're creating a nightmare for cost basis tracking. FIFO vs LIFO vs Specific ID - these matter huge when you're calculating gains/losses.
I learned this the hard way when my accountant charged me $2,000 extra to sort through 400+ transactions.
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