IRS Wash Sale Rule for Crypto – Authoritative Guide

crypto wash sale

One of the most asked questions when it comes to this resource is: “Is Cryptocurrency taxed?” Well, yes. Most countries such as Canada, the UK, and the US, tax this form of an asset as property. We’ve written a complete guide on how to reduce tax on crypto trading and gains.

Therefore, if the asset appreciates in value and you trade, use, or sell it for profit, the money you have gained on the transaction is taxed like capital gains. Since cryptocurrencies are taxable, a lot of digital investors lookup for a way to reduce their taxes. One way of doing so is through a wash sale. 

The wash sale is a transaction in which an individual sells security or stock at a loss to claim tax benefits and acquires substantially identical assets within 30 days. However, to prevent investors and taxpayers from abusing wash sales, Internal Revenue Service (IRS) has instituted a wash-sale rule to prohibit loss deductions for wash sales of securities and stocks. 

Now, the question is, “Does the wash-sale rule apply to crypto?” Let’s answer it below.

What is the IRS Wash-Sale Rule?

Regulated by the Internal Revenue Service (IRS), the wash-sale rule was designed to prevent investors or taxpayers from getting tax deductions for security or stock that has been sold out in a wash sale. 

The main intention of this rule is to avoid circumstances where taxpayers claim artificial losses. Conversely, if an individual were to register gains by selling stocks, and within a month they were to buy substantially identical securities, the transaction would still be taxable. 

Furthermore, the wash-sale rule prevents investors from selling at a loss and buying identical stocks back within 61 days just to claim tax benefits. This rule applies to most investments including bonds, stocks, exchange-traded funds (ETFs), mutual funds, and options. 

Besides that, the wash-sale rule builds an invisible cord through time that separates various investments for tax purposes. As such, if you sell a stock at a loss and buy similar stock within a month, the purchasing and selling are not significant enough for an investor to claim the loss from the introductory transaction. 

The loss will be added to the cost basis of the similar stock you have purchased and you will continue to hold it until such time you will sell the stock at a later date.

How Does Wash Sale Apply to Cryptocurrency?

According to IRS, the wash sales can only be applied specifically to securities and stocks. Since IRS considered cryptocurrency as property, the wash sale rule crypto is not yet applicable until it will be included in legislation that passes the House and the Senate. As such, crypto investors shouldn’t worry about following this rule as of now.

Besides, the wash-sale rule helps them when it comes to tax-loss harvesting. Tax-loss harvesting involves selling an asset when its market value is lower than its cost basis to generate a capital loss.

With this, an individual can net those losses across their ordinary income and capital gains to lessen their tax bill. On top of that, tax-loss harvesting with the investments related to crypto is far more effective than it is with securities or stock.

For example:

Let’s say you bought an Ethereum for $7,000. After 15 months, the value of the Ethereum you purchased dropped by $4,000. You could sell your asset for such a price and get a long-term capital loss of $3,000.

Then, suppose one week later you repurchase another Ethereum that costs $4,000. In this case, you still have the same amount of Ethereum, but now you have a long-term capital loss of $3,000 that can offset your ordinary income or other capital gains.

Now, let’s say you have purchased a Bitcoin that costs $6,000 on the same day you bought your Ethereum and hold on to it for the same duration. After 15 months, the value of your bitcoin rises to $8,000. If you choose to sell this asset for such a price, you will have a long-term capital gain of $2,000.

In this scenario, you could utilize your $3,000 capital loss from disposing of Ethereum to offset your $2,000 capital gains. With that, you will owe no capital gains to be taxed on your crypto gains, and the tax for your Bitcoin will be zero.

does wash sale apply to cryptocurrency

Reporting Crypto Wash Sale on Your Tax Returns

For most individuals who trade and invest the cryptocurrency, it is taxed as property rather than stocks or securities. As such, you’ll have to report any cryptocurrency capital gains and losses on Form 8949 if you have done the following transactions:

  • Trading one crypto for another crypto
  • Selling your cryptocurrency for cash
  • Buying an NFT with cryptocurrency (Yes, NFTs may be subject to tax)
  • Using crypto at merchants as payment or utilizing cryptocurrency as debit cards.

Important Dates and Timelines

The sale of stocks, securities, or options at a loss and repurchasing identical assets in the 30-day timeframe would be subjected to the terms and conditions of the wash-sale rule. Thus, the wash-sale period is actually 61 days; including 30 days before and 30 days after the date of sale.

wash sale rule crypto


What is Wash Sale Rule?

The wash-sale rule is regulated by the IRS to prevent taxpayers and investors from selling at a loss, purchasing substantially identical securities, and claiming tax benefits.

The main intention of this rule is to avoid circumstances where taxpayers claim artificial losses. The wash-sale rule applies to most investments, including bonds, stocks, exchange-traded funds (ETFs), mutual funds, and options.

Does Wash Sale Apply to Cryptocurrency?

According to IRS, cryptocurrency is defined as property. With that said, the wash-sale rule may not be currently applicable to cryptocurrency transactions. As such, you may sell your crypto tokens or bitcoins and purchase them again without waiting for 30 days. However, this rule helps crypto investors when it comes to tax-loss harvesting and tax strategy.   

Do Wash Sale Loss Adjustments Apply to Crypto?

Since cryptocurrency transactions are not taxed as stocks or securities, taxpayers and investors can sell crypto assets at a loss and get substantially identical cryptocurrency without being required to yield their losses under the wash sales rule.

Can You Wash Trade Crypto?

Yes, you can wash trade crypto. However, If you repurchase cryptocurrency assets after the 30 day period passes, your transactions will no longer be classified as wash sale trading. Good thing, there are safer ways to harvest losses on trading crypto assets. 

Is the Wash Sale Rule Illegal?

Since IRS issued the wash-sale rule, this regulation is 100 percent legal. Plus, it should be made clear that making a wash sale is also legal. However, the only illegal is when you claim an improper tax benefit. Triggering the wash sale rule doesn’t mean you will lose all potential value in losing money.

Is Crypto Wash Sale Rule a Tax Loophole?

Since crypto tokens and bitcoins are considered as property, the wash sales rule – which applies to securities, stocks, and options – does not apply to crypto. That said, not having to follow such a rule is exceptionally beneficial for tax purposes, specifically during times where your assets have reached lower values.


Cryptocurrency is a digital asset that has been treated by the IRS as property. Since the wash-sale rule only applies to shares of stocks, securities, and options, crypto investors should not worry about this rule; Instead, they may use it to their advantage when it comes to tax-loss harvesting and reducing cryptocurrency taxes.

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