Crypto Wash Sale Rules 2026
✍️ Author Information
Written by: Davit Cho
Crypto Tax Specialist | CEO at JejuPanaTek (2012~) | Patent Holder (Patent #10-1998821)
7+ years crypto investing experience since 2017 | Personally filed crypto taxes since 2018
LinkedIn: linkedin.com/in/davit-cho-crypto
Email: davitchh@gmail.com
Blog: legalmoneytalk.blogspot.com
Last Updated: December 25, 2025 | Fact-Checked: Based on IRS Publications & Current Tax Law
π Table of Contents
The wash sale rule is one of the most important tax concepts every crypto investor needs to understand. This rule, which has applied to stocks and securities for decades, may soon extend to cryptocurrency, fundamentally changing how investors approach tax-loss harvesting strategies.
In my experience, the current lack of wash sale rules for crypto has been one of the biggest tax advantages available to digital asset investors. I've personally used this loophole to harvest losses and immediately repurchase Bitcoin without waiting 30 days. This window of opportunity may be closing soon.
This guide explains exactly what the wash sale rule is, how it currently applies (or doesn't apply) to crypto, proposed legislative changes, and strategies to maximize your tax benefits before potential rule changes take effect.
π Wash Sale Rule Quick Facts
π Current Status: Does NOT apply to crypto (as of Dec 2025)
⏰ Wash Sale Window: 30 days before + 30 days after = 61 days total
π IRC Section: 1091 (Securities only)
⚠️ Proposed Change: Build Back Better Act would extend to crypto
π What Is the Wash Sale Rule?
The wash sale rule under IRC Section 1091 prevents investors from claiming artificial tax losses by selling securities at a loss and immediately repurchasing the same or substantially identical securities. This rule has existed since 1921 and applies to stocks, bonds, mutual funds, and other traditional securities.
When a wash sale occurs, the disallowed loss isn't lost forever. Instead, it gets added to the cost basis of the repurchased shares, deferring the tax benefit until you eventually sell without triggering another wash sale. The holding period of the original shares also carries over.
The wash sale window spans 61 days total: 30 days before the sale, the sale day itself, and 30 days after. If you purchase substantially identical securities anywhere within this window, the wash sale rule is triggered and your loss is disallowed for current year tax purposes.
For example, if you sell 100 shares of Apple stock at a $5,000 loss on March 15, and then buy 100 shares of Apple on April 1 (within 30 days), the wash sale rule applies. You cannot claim the $5,000 loss on this year's taxes. Instead, your cost basis in the new shares increases by $5,000.
π Wash Sale Rule Timeline Example
| Date | Action | Wash Sale Triggered? |
|---|---|---|
| Feb 13 | Buy 1 BTC at $60,000 | N/A - Crypto exempt |
| March 15 | Sell 1 BTC at $45,000 ($15,000 loss) | N/A - Crypto exempt |
| March 16 | Buy 1 BTC at $45,500 | NO - Crypto currently exempt! |
| Result | $15,000 loss claimed + position maintained | Full tax benefit realized |
Source: IRC Section 1091 | Crypto currently treated as property, not securities
The rule exists to prevent taxpayers from gaming the system by harvesting paper losses while maintaining their economic position. Without this rule, investors could sell on December 31 at a loss, buy back January 1, claim the loss, and essentially continue their investment uninterrupted with a tax benefit.
Substantially identical securities is a key concept. You can't avoid wash sales by buying a nearly identical asset. For stocks, buying shares in the same company triggers the rule. For mutual funds, buying a substantially similar fund tracking the same index may also trigger it.
The rule applies across all your accounts including taxable brokerage, IRA, and even your spouse's accounts if filing jointly. You can't sell in a taxable account at a loss and repurchase in your IRA within 30 days to avoid the rule.
π Wash Sale Rule Official Guidance
IRS guidance on wash sale rules for securities.
π Current Crypto Status (2025-2026)
As of December 2025, cryptocurrency is NOT subject to wash sale rules. This is because the IRS classifies crypto as property under Notice 2014-21, not as securities or stock. The wash sale rule under IRC Section 1091 specifically applies only to "stock or securities," which doesn't include property classifications.
This distinction creates a significant tax planning opportunity for crypto investors. You can sell Bitcoin at a loss, immediately buy back Bitcoin, claim the full loss on your taxes, and maintain your position without any waiting period. This is impossible with stocks.
The crypto tax-loss harvesting advantage is substantial. In volatile markets, prices fluctuate dramatically within days or even hours. Without wash sale restrictions, you can harvest losses whenever prices dip, immediately repurchase, and continue benefiting from any subsequent price recovery.
This loophole has been confirmed by tax professionals and is widely used in the crypto community. Major tax software platforms like CoinTracker, Koinly, and TaxBit all operate under the assumption that wash sale rules don't apply to cryptocurrency transactions.
π Crypto vs Stock Tax Treatment Comparison
| Feature | Stocks/Securities | Cryptocurrency (Current) |
|---|---|---|
| IRS Classification | Securities | Property |
| Wash Sale Rule Applies? | YES | NO |
| Immediate Repurchase After Loss? | Disallows loss | Fully allowed |
| Waiting Period Required? | 31+ days | None |
| Tax-Loss Harvesting Flexibility | Limited | Unlimited |
Source: IRS Notice 2014-21 | IRC Section 1091 | Status as of December 2025
Some tax professionals debate whether certain crypto assets might eventually be classified as securities, particularly tokens issued through ICOs or those that function like investment contracts. The SEC has taken this position on some tokens, but for tax purposes, the IRS property classification remains the standard.
Bitcoin and Ethereum are clearly not securities and benefit from the property classification without question. Stablecoins, utility tokens, and major altcoins generally fall into the same category. Only tokens explicitly classified as securities by the SEC might have different treatment.
NFTs also benefit from the current property classification, though they may face the 28% collectibles tax rate for long-term gains. Like other crypto, NFTs are not subject to wash sale rules under current law.
This favorable treatment could change at any time through new legislation. Congress has proposed extending wash sale rules to crypto multiple times, and the IRS could potentially issue new guidance. For now, take advantage of this opportunity while it lasts.
π Crypto Tax Classification Resources
Official IRS guidance on cryptocurrency tax treatment.
⚠️ Proposed Legislative Changes
Multiple legislative proposals have attempted to extend wash sale rules to cryptocurrency. While none have passed into law as of December 2025, the trend suggests this loophole may close in the near future. Understanding these proposals helps you prepare for potential changes.
The Build Back Better Act originally included provisions to apply wash sale rules to digital assets starting in 2022. Although this legislation stalled, the crypto wash sale provision has been included in subsequent budget and tax proposals. Congress continues to view this as a revenue-generating measure.
The proposed changes would add "digital assets" to IRC Section 1091, treating crypto the same as stocks for wash sale purposes. This means selling Bitcoin at a loss and repurchasing within 30 days would disallow the loss, matching the treatment of traditional securities.
Congressional Budget Office estimates that extending wash sale rules to crypto would generate billions in additional tax revenue over 10 years. This revenue potential makes the proposal attractive to lawmakers seeking funding for other programs.
⚠️ Proposed Crypto Wash Sale Legislation Timeline
| Year | Proposal | Status |
|---|---|---|
| 2021 | Build Back Better Act | Did not pass Senate |
| 2022 | Various budget proposals | Not enacted |
| 2023-2024 | Tax reform discussions | Ongoing proposals |
| 2025-2026 | Potential new legislation | Monitor closely |
Source: Congressional Budget Office | Various legislative proposals
If enacted, implementation would likely include a transition period. Past proposals suggested effective dates ranging from immediate to one year after passage. This transition period would give investors time to adjust strategies and potentially harvest remaining losses under current rules.
The current political environment under the Trump administration may be more favorable to crypto investors. Campaign positions suggested less regulatory burden on digital assets. However, tax policy often transcends political parties when revenue is needed, so vigilance remains important.
State-level wash sale rules present another consideration. While federal law currently doesn't apply wash sales to crypto, some states could independently extend their rules. California and other high-tax states have considered such measures.
Monitor legislative developments through official Congressional sources, crypto industry news outlets, and tax professional updates. Changes could happen quickly once momentum builds, leaving limited time to adjust strategies.
⚠️ Stay Updated on Legislation
Monitor official sources for crypto tax law changes.
π‘ Strategies Before Rules Change
While the wash sale loophole remains open, aggressive tax-loss harvesting can generate substantial tax savings. Implement these strategies now to maximize benefits before potential legislative changes close this window of opportunity.
Harvest losses frequently throughout the year rather than waiting until December. Crypto volatility creates constant opportunities. A 20% price drop presents a harvesting opportunity, and without wash sale restrictions, you can immediately repurchase and maintain your position.
Set price alerts for your holdings at loss thresholds. When Bitcoin drops 10%, 20%, or 30% from your cost basis, you'll receive notifications to evaluate harvesting opportunities. Apps like CoinGecko, CoinMarketCap, and exchange mobile apps offer customizable alerts.
Execute the harvest and repurchase quickly to minimize price risk. Sell the position, immediately place a buy order, and document both transactions. The few minutes between transactions typically result in minimal price difference while preserving your economic position.
π‘ Tax-Loss Harvesting Decision Framework
| Loss Percentage | Action | Rationale |
|---|---|---|
| 5-10% | Consider if fees are low | Small savings, ensure fees don't exceed benefit |
| 10-20% | Harvest recommended | Meaningful tax savings justify transaction |
| 20-30% | Definitely harvest | Substantial savings, act promptly |
| 30%+ | Harvest immediately | Major tax benefit, don't wait |
Consider trading fees and tax bracket when calculating net benefit
Consider harvesting across multiple positions simultaneously. If Bitcoin, Ethereum, and several altcoins are all down, harvest all losses in a single session. This compounds tax savings and is only possible because crypto lacks wash sale restrictions.
Document every harvest transaction meticulously. Record the date, time, amount, sale price, repurchase price, and calculated loss. This documentation defends your position if audited and helps track your adjusted cost basis going forward.
Use harvested losses strategically. Losses first offset capital gains dollar-for-dollar. Excess losses up to $3,000 annually offset ordinary income. Remaining losses carry forward indefinitely to future tax years. A large harvest this year provides benefits for years to come.
Consider your overall portfolio and tax situation. If you have significant capital gains from other crypto sales or traditional investments, harvesting losses becomes even more valuable. Matching gains with losses reduces or eliminates the tax bill.
Don't let the tail wag the dog. Tax savings are valuable, but don't make bad investment decisions purely for tax benefits. If you believe an asset will recover, maintain your position. The tax benefit of harvesting should complement, not drive, your investment strategy.
π‘ Tax-Loss Harvesting Tools
Software to identify and track harvesting opportunities.
π‘️ How to Prepare for New Rules
While enjoying current benefits, prudent investors should also prepare for potential wash sale rule changes. Proper preparation ensures a smooth transition and minimizes disruption to your tax planning strategies.
Maintain detailed records of all transactions now. If wash sale rules are applied retroactively or with complex transition provisions, you'll need complete records to properly calculate adjusted cost basis. Use crypto tax software that tracks all transactions automatically.
Learn how wash sale tracking works for stocks. Understanding the mechanics now prepares you for applying the same concepts to crypto. Your brokerage statements show how wash sale adjustments are calculated and reported.
Consider harvesting accumulated losses before rule changes take effect. If you have substantial unrealized losses, harvesting them while the loophole exists locks in the tax benefit. Once rules change, the same harvesting opportunity may require a 31-day waiting period.
π‘️ Preparation Checklist for Rule Changes
| Action Item | When to Do | Why It Matters |
|---|---|---|
| Use crypto tax software | Now | Automatic wash sale tracking when rules change |
| Harvest existing losses | Before rule changes | Lock in benefits under current rules |
| Learn wash sale mechanics | Now | Understand future planning requirements |
| Monitor legislation | Ongoing | Act quickly when changes announced |
| Consult tax professional | Before major decisions | Personalized strategy advice |
Preparation ensures smooth transition when rules eventually change
Understand alternative strategies that work under wash sale rules. Stock investors use techniques like buying correlated but not identical assets during the 30-day window. Similar approaches may work for crypto, such as swapping to a correlated asset temporarily.
For example, if wash sale rules applied and you wanted to harvest Bitcoin losses, you might sell BTC, buy a Bitcoin ETF or wrapped Bitcoin during the 31-day period, then swap back to BTC. Whether these would be considered "substantially identical" under crypto rules remains uncertain.
Build relationships with tax professionals who understand crypto. When rules change, you'll want expert guidance quickly. Establish that relationship now rather than scrambling to find qualified help during a transition period.
Consider the timing of major portfolio changes. If you're planning to rebalance or exit positions, doing so before potential rule changes maximizes your flexibility. Waiting until after changes may limit tax optimization options.
Stay informed through multiple channels. Follow crypto tax news sources, subscribe to IRS updates, and join investor communities discussing tax strategies. Early awareness of changes gives you time to act strategically.
π‘️ Professional Guidance
Work with crypto-savvy tax professionals.
π Substantially Identical Assets
If wash sale rules extend to crypto, the concept of "substantially identical" assets becomes critically important. This term, not precisely defined in tax law, determines which repurchases trigger wash sale disallowance. Understanding likely interpretations helps prepare for potential rule changes.
For stocks, substantially identical is relatively clear. Shares of the same company are identical. Options on the same stock may be substantially identical. Mutual funds tracking the same index might be substantially identical. Different companies in the same sector are generally NOT substantially identical.
Applying this concept to crypto raises interesting questions. Is Bitcoin on Coinbase substantially identical to Bitcoin on Kraken? Almost certainly yes, they're the same asset. But what about Bitcoin vs. Wrapped Bitcoin (WBTC)? Bitcoin vs. Bitcoin ETF shares? These edge cases need IRS clarification.
Different cryptocurrencies are likely NOT substantially identical even if correlated. Bitcoin and Ethereum, while often moving together, are fundamentally different assets. Selling BTC at a loss and buying ETH probably wouldn't trigger wash sale rules, similar to selling Apple stock and buying Microsoft.
π Potentially Substantially Identical Crypto Assets
| Asset Sold | Asset Repurchased | Likely Substantially Identical? |
|---|---|---|
| BTC (Coinbase) | BTC (Kraken) | Yes - Same asset |
| BTC | WBTC (Wrapped Bitcoin) | Likely Yes - Pegged 1:1 |
| BTC | Bitcoin ETF (IBIT, FBTC) | Possibly - Needs IRS guidance |
| BTC | ETH | No - Different assets |
| ETH | stETH (Lido Staked ETH) | Likely Yes - Derivative of ETH |
| USDC | USDT | Possibly - Both $1 stablecoins |
Speculative interpretations based on stock wash sale precedents | Actual IRS guidance needed
Wrapped tokens and liquid staking derivatives present the most uncertainty. WBTC is designed to mirror Bitcoin's value. stETH (Lido Staked Ethereum) represents staked ETH. These derivatives would likely be considered substantially identical to their base assets, but no official guidance exists.
Stablecoins pegged to the same currency might be considered substantially identical to each other. USDC, USDT, and DAI all track the US dollar. Swapping between them might trigger wash sales if you sold at a loss (which is rare for stablecoins but possible during depegging events).
Bitcoin ETFs like IBIT (BlackRock) and FBTC (Fidelity) present interesting questions. These ETFs hold actual Bitcoin, and their prices track Bitcoin closely. They might be considered substantially identical to holding BTC directly, similar to how mutual funds tracking the same index can trigger wash sales.
Different layer-1 blockchains are almost certainly not substantially identical. Ethereum vs. Solana vs. Avalanche vs. Cardano are different technologies with different use cases. Selling one at a loss and buying another shouldn't trigger wash sale issues.
The IRS will need to provide specific guidance when/if wash sale rules extend to crypto. Until then, tax professionals can only speculate based on existing securities law precedents. Conservative approaches would assume wrapped tokens and ETFs are substantially identical to base assets.
π Related Articles from legalmoneytalk
➡️ Crypto New Year Tax Resolutions 2026
➡️ January Crypto Tax Checklist 2026
➡️ Best Crypto Tax Software 2026
❓ FAQ
Q1. Do wash sale rules currently apply to cryptocurrency?
A1. No. As of December 2025, wash sale rules under IRC Section 1091 apply only to stocks and securities. The IRS classifies crypto as property under Notice 2014-21, which excludes it from wash sale provisions.
Q2. Can I sell Bitcoin at a loss and immediately repurchase?
A2. Yes, under current rules. You can sell crypto at a loss, immediately buy back the same crypto, claim the full loss on your taxes, and maintain your position. This is not possible with stocks due to wash sale rules.
Q3. When will wash sale rules likely apply to crypto?
A3. Unknown. Multiple legislative proposals have attempted to extend wash sales to crypto but none have passed. Monitor Congressional activity for updates. Changes could happen with limited notice.
Q4. What is the wash sale window period?
A4. The wash sale window is 61 days total: 30 days before the sale, the sale day, and 30 days after. Purchasing substantially identical securities anywhere in this window triggers the wash sale rule.
Q5. If I sell Bitcoin and buy Ethereum within 30 days, is that a wash sale?
A5. No, regardless of whether wash sale rules apply. Bitcoin and Ethereum are different assets, not substantially identical. Wash sales only apply when repurchasing the same or substantially identical asset.
Q6. Would Bitcoin and Wrapped Bitcoin (WBTC) be substantially identical?
A6. Likely yes, if wash sale rules apply to crypto. WBTC is designed to track BTC 1:1 and represents the same economic exposure. However, no official IRS guidance exists on this specific question.
Q7. Should I harvest all my crypto losses now before rules change?
A7. Consider harvesting significant unrealized losses while the loophole exists. However, don't make investment decisions purely for tax reasons. Balance tax benefits with your overall investment strategy and outlook.
Q8. What happens to my disallowed wash sale loss?
A8. The disallowed loss isn't lost permanently. It gets added to the cost basis of the repurchased asset. When you eventually sell without triggering another wash sale, the higher basis reduces your gain (or increases your loss) at that time.
⚠️ Disclaimer
This article is for informational purposes only and does not constitute tax, legal, or financial advice. Tax laws are complex and subject to change. The wash sale rule status for cryptocurrency could change through new legislation or IRS guidance at any time.
Consult with a qualified CPA, tax attorney, or other licensed professional before making any tax-related decisions. The author and publisher are not responsible for any errors, omissions, or actions taken based on this information.
Sources: IRC Section 1091 | IRS Notice 2014-21 | IRS Publication 550 | Congressional Budget Office | Various legislative proposals
Last Updated: December 25, 2025 | Author: Davit Cho | LinkedIn: linkedin.com/in/davit-cho-crypto
νκ·Έ: Wash Sale Rule, Crypto Tax 2026, Tax Loss Harvesting, Bitcoin Tax, IRC Section 1091, Substantially Identical, Crypto Loophole, Tax Planning, IRS Crypto, Capital Losses
