What is Tax Loss Harvesting?
Tax loss harvesting is the practice of selling investments at a loss to offset capital gains from other investments. For crypto investors, this means selling coins that have decreased in value to reduce your overall tax liability.
The strategy allows you to offset gains dollar-for-dollar with losses. If your losses exceed your gains, you may be able to deduct up to $3,000 against ordinary income in the US (with excess carried forward).
How Tax Loss Harvesting Works
Review your crypto portfolio to find assets trading below your cost basis. These unrealized losses can be harvested to offset gains from other profitable trades.
Sell the losing positions to convert unrealized losses into realized losses. The loss is calculated as the difference between your sale price and cost basis.
Use the realized losses to offset capital gains. Short-term losses offset short-term gains first, then long-term gains. Long-term losses work similarly.
In most countries, you can immediately repurchase the same crypto after selling (unlike stocks). However, some jurisdictions are considering wash sale rules for crypto.
Wash Sale Rules and Crypto
Current US Rules (2026)
As of 2026, the IRS wash sale rule (which prevents claiming losses if you buy back within 30 days) does NOT officially apply to cryptocurrency. This makes crypto tax loss harvesting more flexible than with stocks.
Pending Legislation
Congress has proposed extending wash sale rules to crypto. Stay informed about legislative changes that could affect this strategy in the future.
Other Countries
Some countries like the UK have wash sale-like rules that apply to crypto. Always check your local regulations before implementing this strategy.
Tax Loss Harvesting Best Practices
Don't wait until December. Monitor your portfolio throughout the year and harvest losses when opportunities arise. Market volatility creates frequent harvesting opportunities.
Factor in gas fees, exchange fees, and potential slippage. Small losses may not be worth harvesting if transaction costs eat into the tax benefit.
If you repurchase after harvesting, your new cost basis is the repurchase price. Keep detailed records to accurately calculate gains on future sales.
Tax savings shouldn't override investment strategy. Only harvest losses on positions you'd be willing to exit anyway, or plan to immediately repurchase.