Wash Sale Rule and Crypto: What to Know

The wash sale rule is a tax provision that prevents investors from claiming a tax loss on a sale if they buy a substantially identical asset within a short window. For securities, this rule is well-established. For cryptocurrency, the position differs by country and has been the subject of repeated legislative proposals. This page explains the rule, how it applies to crypto, and what to consider for your tax situation. Tax treatment differs by country, and the rules for crypto are still evolving, so you must check the regulations in your own jurisdiction.

What Is the Wash Sale Rule?

The wash sale rule is designed to stop investors from selling an asset at a loss to claim a tax deduction, then immediately buying it back. If the rule applies, the loss is disallowed and added to the cost basis of the new asset, deferring the tax benefit until the new asset is sold.

For securities, the rule typically applies if you buy the same or a substantially identical security within 30 days before or after the sale. The exact window and definition of “substantially identical” vary by country.

How the Rule Has Applied to Crypto

Historically, in many jurisdictions, the wash sale rule did not apply to cryptocurrency because crypto was not classified as a security. This allowed investors to sell crypto at a loss and repurchase it shortly after, claiming the loss for tax purposes while maintaining their position. This practice is known as crypto tax loss harvesting.

However, this situation is not permanent. Tax authorities have been paying closer attention to crypto, and some have extended or are considering extending the wash sale rule to digital assets.

In the United States, the wash sale rule in Section 1091 of the tax code applies to “stocks or securities.” The IRS has treated convertible virtual currency as property since Notice 2014-21, so the rule does not apply to crypto that is not itself a security. Extending it to digital assets was part of the Build Back Better Act, which passed the House in November 2021 but was never enacted by the Senate, and similar proposals have appeared in later budget proposals without becoming law.

The Infrastructure Investment and Jobs Act of 2021 is sometimes cited here, but it is a separate matter: it added broker reporting requirements for digital assets, not wash sale provisions. Because these proposals recur each budget cycle, confirm the position for the tax year you are filing.

Why the Historical Treatment Is Not a Safe Assumption

Relying on the historical non-application of the wash sale rule to crypto is risky. The regulatory landscape is changing, and what was allowed in the past may not be allowed in the future. If you engage in loss harvesting without understanding the current rules, you could face unexpected tax liabilities or penalties.

The key takeaway: do not assume that because the rule did not apply in the past, it will not apply in the future. Always check the latest guidance from your tax authority.

Tax Loss Harvesting: What It Is and What to Consider

Tax loss harvesting is the practice of selling assets at a loss to offset capital gains, thereby reducing your tax liability. In crypto, this involves selling a coin that has decreased in value and potentially buying it back later. If the wash sale rule does not apply, you can claim the loss immediately and repurchase the asset after a short period (or even immediately, depending on the rules).

However, there are several factors to consider:

• Tax treatment varies by country: Some countries treat crypto as property, others as securities, and some have specific crypto tax laws. The wash sale rule may or may not apply, and the rules for calculating gains and losses differ.
• The window: If the wash sale rule does apply, the prohibited period is typically 30 days before and after the sale. Check your jurisdiction’s specific window.
• Substantially identical: What counts as “substantially identical” for crypto? Is it the same coin, or could a fork or a token on the same network be considered substantially identical? This is often unclear.

Comparison: Wash Sale Rule Application

What People Get Wrong About This

A common misconception is that the wash sale rule never applies to crypto, so you can always harvest losses without restriction. This is a natural mistake because, for years, that was true in many places. But it is not a permanent truth. Tax laws evolve, and the crypto market’s growth has prompted regulators to close loopholes.

Another mistake is assuming that all crypto assets are treated the same. Some countries distinguish between different types of digital assets, such as currencies, securities, or utilities. A token that is a security may be subject to the wash sale rule, while a currency might not.

Finally, some people think that if they sell and buy back after 30 days, they are safe. But the rule may apply even if you buy before the sale (i.e., you buy more, then sell at a loss within 30 days). Always consider the entire window.

What to Check for Your Jurisdiction

Because tax treatment differs by country, you must check the following for your own jurisdiction:

• How is crypto classified? As a security, property, currency, or something else?
• Does the wash sale rule apply to crypto? If so, what is the exact window and definition of “substantially identical”?
• What are the loss harvesting rules? Are there any restrictions on claiming losses from crypto sales?
• Are there pending changes? Legislation may be in progress that could affect future tax years.

For example, in the United States the wash sale rule has not been extended to crypto. Section 1091 still applies to stocks and securities, and no enacted law has changed that. Proposals recur, so check the rules for the tax year you are filing before harvesting losses.

The UK is a useful warning against assuming that “no wash sale rule” means “buy back freely.” HMRC treats crypto as property rather than securities, but it applies its own share-matching rules to crypto disposals: the same-day rule and the 30-day rule, sometimes called bed and breakfasting. A repurchase within 30 days is matched against the disposal, which changes the gain or loss you can claim. Confirm the current treatment with HMRC.

The Unsettled Area: Staking Rewards

One area where the tax treatment is genuinely unsettled is staking rewards. When you stake crypto, you earn rewards, but the tax treatment of these rewards varies. Some countries treat staking rewards as income at the time they are received, others as capital gains when sold, and some have no clear guidance. This is an evolving area, and you should not assume a particular treatment without checking.

Where the wash sale rule stands for crypto

The wash sale rule and crypto is a complex and changing area. While historically the rule did not apply to crypto in many jurisdictions, this is not guaranteed to continue. Tax loss harvesting can be a useful strategy, but it must be done with an understanding of the current rules in your country. Always consult a tax professional for advice specific to your situation.