Crypto Wash Sale Rule: 2026 IRS Rules

Crypto isn’t currently covered by the IRS wash sale rule, so you can harvest a loss and buy the same coin back immediately without losing the deduction.

That gap could close if Congress extends the rule to digital assets. Many cautious investors still wait 30 days or rotate into a closely correlated token before rebuying to reduce risk.

The wash sale rule (IRC §1091) applies to stock or securities, not property in general. A wash sale happens when you sell stock or securities at a loss and buy substantially identical stock or securities within a 61-day window (30 days before through 30 days after the sale).

Because the IRS treats convertible virtual currency as property, most spot crypto sales are generally not subject to §1091 under current federal rules, even if you sell at a loss and buy the same coin back soon after.

One important exception is crypto exposure held through securities (e.g., certain ETFs), where wash-sale rules may apply.

Why: §1091 is stock/securities and uses the 30-days-before/after window.

Per 26 U.S. Code § 1091, loss from wash sales of stock or securities, securities (e.g., investments such as stocks and bonds) are subject to the rule, which means if an investment you hold has lost value, you cannot sell it to claim losses and buy it back within 30 days.

This rule prevents taxpayers from using "artificial" losses to offset their gains and lower their capital gains tax liability.

The main idea of the rule is that a loss is disallowed when a taxpayer sells stock or securities at a loss and acquires substantially identical stock or securities within the 61-day window.

The IRS wash sale rule does not currently apply to cryptocurrency because it considers virtual currencies to be property rather than securities. This effectively means there is no rule prohibiting crypto wash sales at the time of writing.

Under current federal rules, §1091 generally does not apply to most spot crypto, so selling at a loss and rebuying the same coin does not automatically trigger a wash sale disallowance. Separate from tax rules, “wash trading” and other manipulative trading can violate platform rules and constitute prohibited market conduct in regulated markets.

Wash trading is treated as prohibited “fictitious trading” in regulated markets.

US lawmakers and crypto wash sales

In September of 2021, a House Ways and Means Committee proposal included language applying wash sale rules to digital assets such as crypto. Although the Build Back Better bill stalled in Congress, these developments underlined the government's interest in the matter.

Wash-sale expansion has appeared in multiple draft tax bills since 2021, but none have cleared both chambers. The Inflation Reduction Act of 2022 dropped the provision before enactment, leaving crypto outside §1091 for now. Congress has floated proposals in the past to extend wash sale rules to digital assets, but §1091 still applies to stock or securities as written.

Our expert advice? Use your best judgment regarding the ever-evolving field of cryptocurrency, especially given a pending crypto wash-sale rule in legislation. When in doubt, play it safe.

The aim of a crypto wash sale is to minimize tax liability by reducing capital gains. Through a crypto wash sale, you could pay less in taxes. 

As noted, however, this loophole could be closed, so we strongly recommend avoiding wash sales.

Safer ways to harvest crypto losses

There are safer strategies that are effective in accomplishing this same goal:

1. If you rebuy a crypto asset after the 30-day period passes, your actions will no longer be classified as wash sale trading and will not trigger any future crypto wash sale rule, presuming the rule is the same as that currently in effect for securities.

2. You may trade the depreciated asset for a coin with which its price is closely correlated. You would then hold the correlated coin for more than 30 days before repurchasing the original asset. 

Pro tip
For more on this topic, see our comprehensive, expert article on crypto tax loss harvesting.

With specific attention to the tax regulations or crypto wash sale rule questions in your country, TokenTax crypto tax software calculates capital gains totals using various crypto accounting methods, including FIFO, LIFO, HIFO, the average cost method, and our proprietary Minimization.

With Minimization, we've built upon the HIFO accounting method with a proprietary approach that automatically makes adjustments based on an individual's tax rate to minimize crypto taxes as much as possible. And if you ever need further assistance or clarity about anything related to crypto and taxes, including the crypto wash sale rule, our crypto tax professionals are available to assist.

If there are changes to the rule, it could have significant implications for crypto investors. A modification to this rule would impact the strategies some investors employ to manage their portfolios and minimize tax liabilities. 

If the rule is extended to include crypto, investors will need to reassess their trading practices and consider longer waiting periods before repurchasing assets after a sale to avoid potential penalties. We advise avoiding crypto wash sales regardless.

Changes to the rule could also increase scrutiny from tax authorities and regulatory bodies. Investors should stay informed about any changes to the rule and proactively adjust their tax strategies accordingly.

Seeking guidance from crypto tax professionals like ours at TokenTax can be invaluable during such transitions, helping investors navigate the evolving regulatory landscape and make informed decisions to protect their financial interests and remain compliant.

Determining which of your assets is currently trading at a loss is a crucial aspect of managing your crypto portfolio effectively. To identify underperforming assets, you can regularly track the market value of each crypto holding against its initial cost basis.

Utilizing specialized crypto tax software like ours at TokenTax can simplify this process by providing a comprehensive overview of your portfolio's performance and identifying assets that are currently trading at a loss.

Regularly reviewing your portfolio and assessing individual asset performance with tools like Zerion enables you to make informed decisions, such as tax-loss harvesting or strategic asset allocation.

By staying vigilant and leveraging available tools, you can optimize your investment strategy and mitigate potential losses in the dynamic and famously volatile crypto market.

Pro tip
Your choice of accounting method can affect how you handle wash sales. For more on this, see our expert article to help you identify the right crypto accounting method.

Wash trading in the crypto market involves artificially inflating trading volumes by executing buy and sell orders for the same asset to create misleading market activity. 

Currently, wash trading is generally frowned upon by regulatory authorities. However, the legality of wash trading in the crypto space varies by jurisdiction. Wash trading can raise concerns about market manipulation or fraud, depending on the facts and where the trading occurs, so it is not something to treat as “safe” behavior. Tax loss harvesting is a generally safer approach.