A wash sale rule occurs when an investor sells crypto or securities at a loss and quickly buys them back for tax benefits.
Waiting 30 days between sale and repurchase bypasses the rule.
While the rule currently applies to securities, there’s potential legislation for crypto.
It’s safer to avoid crypto wash sales due to uncertainty.
The rule stops “artificial” losses for tax gain offset.
How to save taxes with the crypto wash sale rule
Currently, the IRS doesn’t apply the wash sale rule to cryptocurrency, as it’s considered property, not securities. so it doesn’t exist for now.
Yet, lawmakers are discussing changes. In 2021, a proposal hinted at a crypto wash sale rule, though the bill stalled.
Biden signed it in 2022, urging agencies to focus on crypto wash sales.
This shows fast action on crypto legislation.
Be cautious as the crypto landscape changes, especially with a potential wash sale rule.
When unsure, prioritize safety.
How does the wash sale rule impact my tax bill?
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. Here’s how.
Safer ways to harvest crypto losses
There are safer strategies that are effective in accomplishing this same goal:
- If you rebuy a crypto asset after the 30 day period passes, your actions no longer classify as wash sale trading and will avoid any future crypto wash sale rule, presuming the rule is the same as that which currently exists for securities.
- You may trade the depreciated asset for a coin with which its price is closely correlated. You would then hold that correlated coin for more than 30 days, and then repurchase the original asset.
Also read: Where To Buy Pepe Crypto?
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Frequently Asked Questions
Does the wash sale rule carry over into the next year?
Indeed, selling and repurchasing an asset within 30 days, even spanning different calendar years, qualifies as a crypto wash sale. For instance, selling on December 15 and buying on January 1 falls under this definition.
Can you still do wash sales with crypto?
Currently, there’s no official crypto wash sale rule.
Yet, the Biden administration is intensifying scrutiny on crypto, hinting at a future ban on the current loophole, making crypto wash sales illegal.
How can I tell which one of my assets is currently trading at a loss?
To gauge your portfolio’s performance, monitor your crypto gains and losses.
Our TokenTax software simplifies this, and our expert team offers assistance if needed.
Will the wash sale rule for crypto change in the future?
Given recent rulings on crypto cases and the Build Back Better Act (signed into effect in March of 2022), it is reasonable to expect that crypto wash sales will soon be declared illegal.
Can you sell crypto for a loss and buy back?
Sell crypto at a loss, then repurchase anytime. Wash sale rule impacts quick sales for tax benefits. Safest: wait 30 days after selling to rebuy for tax compliance.
How do I bypass the wash sale rule?
Easily bypass wash sale: Wait 30 days after selling before rebuying. IRS rule: Loss not deductible if repurchased within 30 days.
Is wash sale loss disallowed for crypto?
Currently, no US crypto wash sale rule; wash sales legal. Likely to change with proposed legislation.