I'm a developer, not a tax professional. This guide is researched from IRS.gov and verified 2026 sources (linked throughout) but hasn't been reviewed by a CPA. Verify against official guidance before making filing decisions — tax loss harvesting has real complexity, and individual results vary.
You sell Token A at a loss → you realise a capital loss on paper → that loss offsets your capital gains from other trades → your taxable gain shrinks → you pay less tax. Then you buy Token A back immediately and your market exposure is unchanged.
| Asset type | Wash sale rule applies? | Can buy back immediately? |
|---|---|---|
| Stocks and ETFs | Yes — 61-day blackout | No — loss disallowed |
| Mutual funds | Yes — 61-day blackout | No — loss disallowed |
| Cryptocurrency (BTC, ETH, SOL etc.) | No — not yet | Yes — loss still claimable |
| Bitcoin spot ETF (e.g. IBIT, FBTC) | Yes — ETF is a security | No — loss disallowed |
| Tokenised securities | Likely yes — check with CPA | Probably not safe |
Congress has proposed extending the wash sale rule to digital assets every year since 2021. The Build Back Better Act (2021), Biden's fiscal 2025 budget proposal, and multiple standalone bills in 2024-25 all included this provision. None have passed as of July 2026 — but the IRS has already added a "Wash Sales Loss Disallowed" field (Box 1i) to Form 1099-DA, ready for when legislation passes. Most tax professionals now describe this as a question of "when," not "if." If you plan to use this strategy, use it while it's still available — future legislation could take effect quickly, potentially even mid-year.
When you sell and rebuy the same asset, your holding period in the repurchased position starts fresh from the rebuy date — not from when you originally bought. If you were 10 months into a 12-month long-term holding period, selling and rebuying resets you to zero. You'd need to hold another 12 months from the rebuy date to qualify for the long-term rate. Weigh the immediate tax saving against the potential cost of paying short-term rates on a future gain.
| What you're offsetting | Limit | Tax saved |
|---|---|---|
| Short-term capital gains (same year) | No limit | Your full short-term rate (10–37%) |
| Long-term capital gains (same year) | No limit | Your full long-term rate (0%, 15%, or 20%) |
| Ordinary income (if losses exceed all gains) | $3,000 per year ($1,500 married filing separately) | Your ordinary income rate on the $3,000 |
| Remaining losses above $3,000 | Carry forward indefinitely | Used in future tax years against future gains |
If you harvest $50,000 in losses in a bear year but only have $20,000 in gains to offset, the remaining $27,000 ($50,000 − $20,000 − $3,000) carries forward to future tax years indefinitely. In a future bull year when you have large gains, those carried-forward losses can offset them directly — potentially saving you thousands at that point. Harvested losses don't expire. This is why harvesting aggressively in a down market is often the highest-leverage tax move a crypto investor can make.
The IRS can challenge transactions it believes lack genuine economic substance — meaning you sold solely to manufacture a tax loss with no real change in your investment position. Tax professionals on record in 2026 have specifically flagged that selling and rebuying within seconds, repeatedly and mechanically, increases this risk. The wash sale exemption is not a shield against the broader economic substance doctrine. If the IRS determines a transaction was solely tax-motivated with no real economic change, it can disallow the loss regardless of whether Section 1091 technically applies.
Congress could pass legislation extending wash sale rules to crypto that takes effect quickly — potentially within the same tax year it's passed. If you harvest a loss in Q1 and the law changes in Q3 retroactively covering that tax year, your loss could be disallowed. Conservative tax professionals recommend not assuming the exemption will last the full year, especially in the current legislative environment.
Every sell and rebuy involves exchange fees, gas fees (for on-chain transactions), and spread. On a large position these are minimal. On a small loss, the fees can exceed the tax saving. Calculate the net benefit before harvesting: (loss amount × your tax rate) minus (total transaction costs). If the result is negative, don't harvest.
Starting with 2025 transactions, your exchange reports your gross proceeds to the IRS on Form 1099-DA. In 2026 this data is now in the IRS system. If your reported losses on Form 8949 don't align with what your exchange reported, you may receive an IRS mismatch notice. Keep your own complete records and reconcile them against every 1099-DA you receive before filing.
If you sell a Bitcoin spot ETF at a loss and buy it back (or buy the same ETF, a substantially identical ETF, or possibly even spot Bitcoin itself, depending on IRS interpretation) within 30 days, your loss may be disallowed under Section 1091. The ETF is a security. Crypto is property. They are not the same asset class for tax purposes, even if they track the same underlying asset. If you hold both spot BTC and a Bitcoin ETF, be especially careful — the IRS could potentially argue that buying spot BTC within 30 days of selling a Bitcoin ETF (or vice versa) triggers the wash sale rule on the ETF side, since the economic exposure is substantially identical.
If ETH rises back to $3,800, your new position has a gain of $7,000 (based on the new $2,400 cost basis). You'll owe tax on that gain when you eventually sell — but you've deferred it, and if you hold for 12+ months from the rebuy date, it'll be taxed at the long-term rate instead of the short-term rate you might have faced otherwise. The loss harvest saved you $1,050 today and gave you flexible timing on the future gain.