What Is the Wash Sale Rule?
The wash sale rule bars deducting a loss on a security if you buy the same or a substantially identical one within 30 days before or after the sale. It exists to stop investors from manufacturing paper losses while never really parting with a position. The crypto angle: the rule covers securities, and the IRS classifies crypto as property, so the bar does not currently apply to selling and promptly rebuying coins.
How It Actually Works
- In stocks: sell at a loss, rebuy inside the window, and the deduction is disallowed now, added to the new lot's basis instead, deferred, not destroyed.
- In crypto today: sell the dip, harvest the loss, rebuy the same coin immediately, and the deduction stands under current law. This asymmetry is the engine of crypto tax-loss harvesting.
- Where the exemption ends: crypto ETFs and crypto-company stocks are securities, fully washed; and Congress has repeatedly proposed extending the rule to digital assets. Treat the loophole as a current fact with an expiration risk, and check the year's law, as my tax guide urges.
Risks and Common Mistakes
- Applying stock instincts to coins, skipping legitimate harvests out of caution, or crypto instincts to ETFs, taking disallowed deductions with confidence.
- Economic-substance overreach: same-second round trips executed purely for tax theater invite scrutiny under general anti-abuse doctrines even where the wash rule is silent. Modest gaps and real market exposure are cheap insurance.
- Forgetting the records: every harvest-and-rebuy creates lots that the wallet-by-wallet basis rules expect you to track cleanly.
When It Matters
Every December harvest, every dip-buying reflex around a realized loss, and the day the law changes, which is a headline worth an alert. Rate math to pair with it: capital gains and the estimator.
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