Does the wash sale rule apply to crypto and Bitcoin losses on my 2025 tax return?

As of the 2025 tax year, the wash sale rule does NOT apply to cryptocurrency. This is one of the most significant tax advantages crypto holders have over stock investors — and it creates a powerful (and currently legal) tax-loss harvesting opportunity.

What the wash sale rule is: Under IRC Section 1091, if you sell a stock (or other security) at a loss and repurchase a "substantially identical" security within 30 days before or after the sale, the IRS disallows the loss. You can't claim the tax deduction.

Why crypto is exempt: The wash sale rule applies only to "securities" as defined under the Internal Revenue Code. Cryptocurrency is classified by the IRS as property, not a security. Therefore, you can sell Bitcoin at a loss, immediately rebuy Bitcoin, and still claim the full capital loss on your tax return.

Example of crypto tax-loss harvesting in 2025:

• You bought 1 BTC at $90,000 in January 2025
• BTC drops to $65,000 in October 2025
• You sell 1 BTC at $65,000, locking in a $25,000 capital loss
• You immediately buy 1 BTC again at $65,000
• You can claim the $25,000 loss to offset capital gains (or up to $3,000 of ordinary income per year, with the rest carried forward)
• Your cost basis in the new BTC is $65,000

Important warnings:

• Congress is watching: Legislation has been proposed multiple times to extend the wash sale rule to crypto. Always check for rule changes before year-end. If wash sale rules are extended to digital assets, they would likely be prospective, but this is an evolving area.
• Substance over form: The IRS can challenge losses it deems lack economic substance — selling and immediately rebuying purely for a paper loss with no change in position has been questioned, though this argument hasn't been widely applied to crypto.
• Staking, hard forks, airdrops: Wash sale rules aside, these events create separate taxable events with their own basis issues.
• State taxes: Some states may have different rules — check your state's treatment of digital asset losses.
• Form 8949 and Schedule D: Report crypto gains and losses on Form 8949, using the cost basis per IRS Rev. Proc. 2024-28 HIFO/FIFO rules.

Until legislation changes, tax-loss harvesting in crypto remains one of the few strategies that doesn't require a 30-day wait.