You sold Bitcoin at a loss, waited 25 days, and bought back in. Can you claim that loss? The answer is more complicated than you'd think.
What Is the Wash Sale Rule?
The wash sale rule (IRC Section 1091) prevents taxpayers from claiming losses on the sale of securities if they buy a "substantially identical" security within 30 days before or after the sale.
📅 The 61-Day Window: If you sell at a loss and repurchase within 30 days before OR 30 days after, it's a wash sale.
Does It Apply to Crypto?
🤷 The Honest Answer: Nobody Knows For Sure
The IRS has not issued clear guidance on whether wash sale rules apply to cryptocurrency.
The Arguments For Wash Sales Applying
- Crypto is property — The IRS treated crypto as property in Notice 2014-21
- Securities include property — Some argue the wash sale rules should apply to all property
- IRS audit risk — If audited, the IRS may try to apply wash sales
- Recent crypto-specific guidance — The 1099-DA suggests crypto is becoming more like securities
The Arguments Against
- Wash sales specifically mention "securities" — Crypto isn't clearly a security
- No regulations issued — The IRS has had years to clarify and hasn't
- Different market structure — Crypto trades 24/7 globally
- No "substantially identical" definition for crypto — Is Bitcoin Cash "substantially identical" to Bitcoin?
What About "substantially Identical"?
This is where it gets interesting. The wash sale rule applies to "substantially identical" securities. But what does that mean for crypto?
Examples:
- BTC → BTC — Obviously identical
- ETH → WETH — Likely substantially identical (wrapped tokens are 1:1)
- BTC → BCH — Grey area (some say no, same chain split)
- ETH → MATIC — Likely NOT substantially different (different chains)
- SOL → BONK — Definitely NOT substantially identical
What Tax Pros Are Doing
In practice, most CPAs and tax software take one of these approaches:
❌ Conservative Approach
Apply wash sale rules to all crypto. Disallow any loss if repurchased within 31 days. Safest from an audit perspective.
✅ Aggressive Approach
Don't apply wash sale rules at all (since no clear guidance). Claim all losses freely. More risk but potentially higher tax savings.
🎯 Middle Ground (Recommended)
Apply wash sale rules to wrapped tokens (WETH, cbETH, stETH = ETH) and forks (BTC → BCH), but NOT to different chains or unrelated tokens.
The Smart Strategy
If you want to harvest losses without wash sale complications:
- Wait 31+ days — The safest approach
- Buy a different chain's token — Sell BTC, buy ETH or SOL
- Buy a different asset class — Sell crypto, buy real estate or stocks
- Don't repurchase the exact same token — Even on a different exchange
⚠️ Important
If you're going to claim crypto losses, document your methodology. If the IRS ever questions it, you'll need to show reasonable basis for your approach.
How Arthur Labs Handles This
Our system allows you to choose your wash sale treatment:
- Conservative — Apply to all same-token repurchases
- Moderate — Apply to wrapped tokens and forks only
- None — Don't apply wash sale rules
Disclaimer: This article is for educational purposes only. Wash sale application to crypto is uncertain — consult a qualified tax professional.