Tax-loss harvesting is the practice of selling an investment that has fallen below its cost so the loss lands on this year's return. With crypto it works much as it does with shares, with one large difference as of November 2026: the wash-sale rule that stops stock investors from selling and quickly rebuying does not, under current law, reach coins you hold directly. This guide covers the mechanics, what a harvested loss is worth, where that gap stands in Congress and the traps that can cost you the deduction. For how crypto gains are taxed in the first place, start with the crypto hub or a primer on how crypto gains are taxed.
How does crypto tax-loss harvesting work?
You sell coins that are worth less than you paid, which turns an unrealized loss into a realized one that can reduce your taxable gains and income. The loss equals your cost basis in the units sold minus what you receive after fees. It is short-term if you held those units one year or less and long-term if you held them longer. Swapping one coin for another is a sale too, so a loss can be harvested without ever touching dollars.
Harvested losses then flow through Schedule D in a fixed order.
| Step | What happens on Schedule D |
|---|---|
| 1 | Short-term gains and losses are combined into a net short-term figure on line 7 |
| 2 | Long-term gains and losses are combined into a net long-term figure on line 15 |
| 3 | The two figures are added together on line 16 |
| 4 | A net loss on line 16 offsets ordinary income, up to the yearly limit |
| 5 | Any loss left over carries to the next year and keeps its short-term or long-term character |
The yearly limit in step 4 is $3,000 a year against ordinary income ($1,500 if married filing separately). Publication 550 says an unused loss can be carried to later years until it is completely used up, and a long-term carryover reduces long-term gains before short-term ones.
Which units you sell matters as much as when you sell. Since 2025, lots are tracked wallet by wallet, and choosing the highest-cost units in a wallet produces the largest loss for the same sale; crypto cost basis methods explains how to identify them in time. Short-term losses are often worth more than long-term ones, because they cancel short-term gains first, and those are taxed at ordinary income rates.
Does the wash-sale rule apply to crypto?
Not under current law: section 1091 covers stock and securities, and the IRS has issued no guidance applying it to coins held directly. For shares, a loss is disallowed when substantially identical stock or securities are bought within 30 days before or after the sale (a 61-day window), and Publication 550 counts purchases by your spouse, a corporation you control or your own IRA. The disallowed loss is added to the basis of the new shares, so it is postponed rather than lost, except when the repurchase happens inside the IRA.
In its description of the pending bill, Congress's Joint Committee on Taxation summed up present law this way: “Digital assets are not expressly within the scope of section 1091, and the IRS has not issued regulations or guidance addressing whether the wash sale rule may apply to sales or dispositions of digital assets.” Commodities and foreign currency sit outside the rule for a similar reason, since neither counts as stock or securities. Tokenized securities are the exception on the crypto side: a token that represents a share is still a security, and Form 1099-DA has a box, 1i, for wash-sale losses disallowed on them.
Congress may close the gap: H.R. 9172 and H.R. 10357 would apply the wash-sale rule to digital assets; neither had passed the House as of November 1, 2026. H.R. 10357, the Digital Asset Tax Certainty Act, would apply section 1091 to any traded digital asset other than a qualified US dollar stablecoin. A wrapped or tokenized version that is economically equivalent would count as substantially identical, and coins received from staking or mining would be ignored when testing for a repurchase. The committee's amended text applies the change to sales after September 14, 2026, the day the bill was introduced, so a loss harvested and bought back since then could be disallowed if the bill passes in that form. A 2025 Senate bill, S. 2207, has a similar wash-sale section and has not left the Finance Committee.
| Sold at a loss | Wash-sale rule today | Under H.R. 10357 as amended in committee |
|---|---|---|
| Coins held directly, such as bitcoin or ether | Not covered | Covered for sales after September 14, 2026 |
| A wrapped version of a coin | Not covered | Can count as substantially identical to the coin it tracks |
| Qualified US dollar stablecoins | Not covered | Excluded |
| Tokenized stock or bonds | Covered, as securities | Covered |
| Shares, bonds and options on them | Covered | Covered |
| Spot crypto ETF shares | Unsettled | Not addressed separately in the committee's description |
Can the IRS challenge a crypto loss without a wash-sale rule?
Yes, because two older rules still apply to coins: one bars losses on sales to relatives, and the other ignores trades that change nothing but your tax. Section 267 denies a deduction for any loss on a sale, direct or indirect, between related persons. For an individual that means a spouse, brothers and sisters, parents and grandparents, children and grandchildren, plus certain controlled companies and trusts. Selling a coin at a loss to your spouse or a sibling produces no deduction, even at a fair price.
The economic substance doctrine is broader. Where it is relevant, section 7701(o) treats a transaction as having economic substance only if it changes your economic position in a meaningful way apart from federal income tax effects and you had a substantial purpose for it apart from those effects. A sale and repurchase of the same coin seconds apart, at nearly the same price, leaves your position almost unchanged, which is hard to square with the first half of that test. The IRS has published no guidance applying the doctrine to crypto harvesting, so how it would treat a quick round trip is uncertain. If a transaction is found to lack economic substance, the resulting underpayment draws a 20% penalty, or 40% when the transaction was not disclosed on the return.
Are crypto ETF losses treated the same as coin losses?
Not necessarily, because ETF shares trade on stock exchanges and the IRS has not said whether the wash-sale rule reaches them. Spot bitcoin and ether funds are generally set up as grantor trusts, and Revenue Procedure 2025-31 restates the long-standing principle that the owner of an undivided interest in such a trust is treated as owning part of its assets for federal income tax purposes. Whether that treatment keeps fund shares outside a rule written for stock or securities has not been decided. A harvested ETF loss followed by a quick repurchase, or a switch between two funds holding the same coin, is a question for a tax professional; for a wider look at funds versus coins, see bitcoin ETFs vs owning bitcoin.
Two other differences matter. Losses inside an IRA or other tax-advantaged account produce no deduction at all, and for shares, buying back inside an IRA after a loss in a taxable account turns a postponed loss into a permanent one. Brokers flag only the wash sales they can see within one account, but Publication 550 says a wash-sale loss is not deductible even when the broker's form does not show it.
How much can harvesting a crypto loss save?
It depends on what the loss cancels: short-term gains and ordinary income save tax at your top rate, while long-term gains save at 0%, 15% or 20%. For 2026 the long-term rates are 0% up to $49,450 of taxable income (single) or $98,900 (married filing jointly); 15% above that; 20% above $545,500 (single) or $613,700 (joint). Higher earners also owe the net investment income tax, 3.8% on the smaller of net investment income and the amount by which modified AGI exceeds $200,000 (single) or $250,000 (married filing jointly), and a harvested loss shrinks that base as well.
Worked example: A $12,000 harvested loss for a single filer in 2026
A single filer's wages put them in the 24% bracket. In April 2026 they sold a coin held for seven months at a $9,000 short-term gain. Another coin, bought in March 2025 for $30,000, is worth $18,000 in December 2026. State tax and the net investment income tax are left out.
- Without harvesting, the $9,000 short-term gain is taxed at 24%: $2,160.
- Selling the second coin realizes a $12,000 long-term loss. Netting leaves $9,000 short-term and minus $12,000 long-term, a net loss of $3,000.
- The $9,000 gain is wiped out, saving $2,160, and the $3,000 net loss offsets wages, saving $720. Federal tax falls by $2,880, with nothing left to carry forward.
- Buying the coin back at $18,000 sets a new basis of $18,000 and starts a new holding period. Selling more than a year later at $30,000 would produce a $12,000 long-term gain, or $1,800 at 15%.
Over the full cycle the holder keeps about $1,080 and defers the rest, because the loss offset income taxed at 24% while the later gain is taxed at 15%. Sold within a year, the later gain would be short-term at 24% and the whole $2,880 would come back. If H.R. 10357 became law in its committee form, a buyback within 30 days of the December sale would make it a wash sale: no 2026 deduction, with the $12,000 added to the new coins' basis instead.
To see how far a holding sits below your cost, compare today's price on the bitcoin or ether page with your purchase records.
What should you check before harvesting a crypto loss?
Start with the lot records, since the size and character of the loss depend on which units leave the wallet.
Before you sell at a loss
- The wallet or account the units sit in, with their cost and purchase dates there
- Whether those units are short-term or long-term on the sale date
- Gains already realized this year, including on shares and funds, so you know what the loss will offset
- Trading fees and spreads, which are a real cost even though they add to the tax loss
- Whether you plan to buy back, and how the pending bill's September 14, 2026 start date would affect that
- That the buyer is not a relative or an account you or your spouse control
- That the sale happens by December 31 if you want the loss on your 2026 return
- A copy of the trade confirmation, since Form 1099-DA may show no basis for coins bought before 2026
Selling at a loss through a platform works like any other sale; how to sell crypto and withdraw explains the process and how long a cash-out takes. Giving away a coin that is worth less than you paid is a different matter, because neither you nor the recipient can deduct the drop that happened before the gift; crypto gifts and donations explains the basis rules.
What are the risks of crypto tax-loss harvesting?
The biggest risks are a law change that disallows the loss, a challenge to the trade itself and price moves while you are out of the coin.
- Retroactive legislation. If H.R. 10357 passes with its September 14, 2026 start date, a repurchase within 30 days of a loss sale made after that date would be a wash sale, possibly after you have filed. Bills not enacted by the end of the 119th Congress, on January 3, 2027, would have to be introduced again.
- Disallowed or penalized losses. Sales to related persons do not produce a deductible loss, and a round trip with no real change in position invites an economic substance challenge and a 20% or 40% penalty.
- Market risk. Crypto is volatile and can lose most or all of its value. A coin can rebound sharply while you wait to buy back, or keep falling after you do, and either move can outweigh the tax saved.
- A smaller future basis. Buying back at the lower price lowers your basis and restarts the holding period, so part of the saving is a deferral, as the example shows.
- Costs and records. Spreads, fees and network charges eat into the benefit, and a loss you cannot document with dates and amounts is hard to defend.
Income from staking follows different rules from losses on coins you sell; is staking income taxable? covers it, and the wash-sale rule explains the stock version in more depth. Because Congress is actively rewriting these rules, check the law in force when you file and ask a tax professional how harvesting fits your own situation.