Crypto Wash Sale Rule: Tax Savings 2023

A cryptocurrency tax loophole that’s helped investors save thousands of dollars may be closing in the next few months. 

Recently, Congress debated a bill that would’ve introduced the wash sale rule to cryptocurrency and taken away tax benefits from thousands of crypto investors. 

In this article, we’ll discuss what the wash sale rule is and what it means for investors like you. 

What is the wash sale rule? 

Claiming a capital loss can reduce your tax burden for the year. Capital losses can offset capital gains and up to $3,000 of your personal income. 

As a result, many investors claim capital losses on stocks, cryptocurrencies, and real estate to minimize their tax bills. 

Of course, not every loss can be claimed on a tax return. The wash sale rule says investors are not allowed to claim capital losses on a stock if they buy the same stock 30 days before or after the sale. 

The purpose of the law is to prevent people from selling for no other reason than to claim the loss.

Currently, the wash sale rule applies only to securities (like stocks). However, Bitcoin and other cryptocurrencies are classified as property by the IRS. As a result, it’s reasonable to assume that the wash sale rule does not apply to cryptocurrency at this time. 

How does the wash sale rule impact my tax bill? 

For years, investors who’ve taken profits on cryptocurrency or stock gains have used wash sales to reduce their tax liability. 

Because cryptocurrency is so volatile, some investors choose to harvest their losses multiple times in a given year, then re-enter the same positions shortly afterwards while claiming capital losses on their tax returns. 

For more information, check out our complete guide to crypto tax-loss harvesting. 

Will the wash sale rule apply to cryptocurrency? 

The Build Back Better Act, if passed, would expand the wash sale rule to apply to cryptocurrency. However, after the new year, the bill stalled in Congress. It’s now unclear when or if this bill will become law. Our team will be closely monitoring this legislation for future updates.

If the wash sale rule is changed, what does it mean for crypto investors like me? 

Seeing that no laws tying cryptocurrency to the wash sale rule have moved forward, it’s likely that at this time investors can sell their cryptocurrency at a loss, claim a capital loss on their tax return, and re-enter the position shortly after.

Still, investors should be prepared for potential changes at some point in the future. If the wash sale rule is introduced to cryptocurrency, investors will need to carefully track the dates they bought and sold their coins if they wish to re-enter the market while still claiming their capital losses.
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How can I tell which one of my assets is currently trading at a loss? 

If you’ve traded cryptocurrencies through multiple wallets and exchanges, it can be difficult to tell which one of your assets is currently trading at a loss. 

Crypto tax software like CoinLedger can help. Once you import your cryptocurrency transaction history, you’ll be able to view all of your tax-loss harvesting opportunities at a glance. 

How can I manage my crypto taxes? 

If you’re looking for an easy way to manage your crypto taxes and harvest your losses, try CoinLedger. More than 300,000 investors use the platform to save money and simplify the process of crypto tax reporting. 

Get started with a free preview report today — there’s no need to add your credit card details until you’re 100% sure your transaction history is accurate.