Crypto Tax Loss Harvesting: How to Cut Your Capital Gains Bill

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TL;DR

• Sell crypto that’s below its purchase price to lock in a capital loss.
• Use that loss to offset any crypto gains you realized in the same tax year.
• You can also offset up to $3,000 of ordinary income and carry any excess loss forward.
• Because the U.S. currently has no wash‑sale rule for digital assets, you can buy the same coin back after 24hours.
• Track every trade, acquisition date, and cost basis with a dedicated crypto‑tax tool.

When you hear the phrase crypto tax loss harvesting is a legal strategy that lets investors sell losing cryptocurrency positions to generate capital losses and lower their overall tax bill. The idea isn’t new-anyone who invests in stocks or mutual funds can offset gains with losses-but crypto’s volatility and the current regulatory gap around wash‑sale rules make it especially potent.

What Exactly Is Tax Loss Harvesting in the Crypto World?

In plain terms, you purposefully sell a digital asset for less than what you paid. That sale creates a realized capital loss, which the IRS lets you use against any capital gains you earned that year. If your losses exceed your gains, you can deduct up to $3,000 of the excess against ordinary income and push the remainder into future years.

Two key tax concepts drive the benefit:

1. Capital Gains Tax is the tax you owe when you sell an investment for more than its cost basis.
2. Capital Loss reduces the amount of taxable gain, potentially to zero.

Why Crypto Gives You an Edge Over Traditional Securities

Traditional stock markets enforce a “wash‑sale rule.” If you sell a security at a loss and buy the same security within 30days, the loss is disallowed for tax purposes. The Wash Sale Rule was designed for stocks, options, and ETFs.

Research from the European Banking Authority shows that, as of 2025, there is no equivalent rule for cryptocurrencies in the United States. That means you can sell Bitcoin at a loss, wait 24hours, and repurchase the exact same amount without losing the tax benefit. The trade‑off? Your new cost basis resets to the repurchase price, which could affect future long‑term‑holding strategies.

Step‑by‑Step: How to Harvest Crypto Losses Efficiently

1. Identify Your Gains. Pull a report from your exchange or tax software that lists every crypto transaction that resulted in a capital gain during the tax year.
2. Spot Unrealized Losses. Look for assets whose current market price is below the original purchase price. Focus on positions that would generate the biggest loss if sold today.
3. Execute the Sale. Sell the losing assets on a regulated exchange (Coinbase, Gemini, Kraken, etc.). Record the transaction date, amount sold, proceeds, and original cost basis.
4. Re‑Enter the Position. After a 24‑hour cooling period, buy the same coin back. This avoids any potential future wash‑sale legislation and restores market exposure.
5. Update Your Records. Adjust the cost basis to the new purchase price and note the new acquisition date. This is crucial for calculating future gains.
6. File the Tax Return. Use Schedule D (Form 1040) to report capital gains and losses. Attach Form 8949 for each crypto transaction.

Because crypto transactions can number in the hundreds, manual tracking is a nightmare. That’s where dedicated crypto‑tax platforms come in.

Tools and Services That Make Harvesting Simple

Several firms specialize in automating the process:

• Koinly offers a free “Ultimate 2025 Guide” plus a built‑in loss‑harvest report that flags eligible positions.
• CoinLedger generates a Tax Loss Harvesting report for the current tax year and integrates with major exchanges.
• Gordon Law Group provides legal counsel for complex situations, such as large institutional portfolios or cross‑border investors.

All three tools automatically calculate cost basis, acquisition dates, and the net effect on your tax liability, leaving you free to focus on strategy rather than spreadsheets.

Comparing Crypto vs. Traditional Securities Wash‑Sale Rules

Real‑World Numbers: A Simple Example

Imagine you bought 2BTC in January 2024 for $30,000 each. By October 2025 the price is $22,000. Selling both now realizes a $16,000 loss.

Meanwhile, you sold some ETH in July for a $5,000 gain. After the BTC loss, you have a net $11,000 capital loss. You can use $5,000 to wipe out the ETH gain entirely, leaving $6,000 of loss to offset ordinary income (up to $3,000 this year, the rest carries forward). The result: you cut your 2025 tax bill by roughly $1,200 (assuming a 20% capital gains rate) and keep exposure to BTC by buying it back after 24hours at $22,000.

Common Pitfalls and How to Avoid Them

• Missing Records. Failing to capture acquisition dates leads to incorrect cost‑basis calculations. Use a tax‑tracker from day one.
• Ignoring Future Rule Changes. If the IRS eventually enacts a crypto wash‑sale rule, you’ll need a 30‑day holding period. Keep a buffer of at least 30days once legislation is announced.
• Resetting Cost Basis Too Early. Re‑buying at a much lower price can improve future gains but may also lock you into a higher basis if the market rebounds quickly. Consider partial repurchases to hedge.
• Over‑Harvesting. Selling too many positions can inadvertently push you into a short‑term loss regime, which may be taxed at ordinary rates if you hold less than a year after repurchase.

Next Steps for Every Investor

Whether you’re a casual trader or a portfolio manager, follow these actions:

1. Pull a full transaction export from every exchange you use.
2. Import the data into a crypto‑tax tool (Koinly, CoinLedger, etc.).
3. Run the “Loss Harvest” report and note suggested sell orders.
4. Execute the sales, wait 24hours, then repurchase if you still want exposure.
5. Update your records and file the appropriate Schedule D forms before the tax deadline.

Staying disciplined each quarter, not just at year‑end, smooths cash‑flow needs and maximizes tax savings.

Frequently Asked Questions

Can I harvest losses on any cryptocurrency?

Yes. The IRS treats every digital asset as property, so any crypto that you sell for less than its cost basis generates a deductible loss. The only nuance is that stablecoins pegged to fiat may have negligible price movement, so the loss potential is limited.

Do I have to wait 24hours before buying back?

Waiting 24hours is a safe practice under current guidance. It isn’t a legal requirement, but it reduces the risk of a future wash‑sale rule being applied retroactively.

What if I have losses larger than my gains?

You can offset up to $3,000 of ordinary income each year and carry any remaining loss forward indefinitely. The carryforward will offset future gains or ordinary income in subsequent tax years.

Is crypto tax loss harvesting legal?

Absolutely. It follows the same tax code provisions that apply to stocks and bonds. Professional firms like Gordon Law Group have confirmed that, when reported correctly, the strategy is fully compliant.

Do I need a tax professional?

If your crypto activity is modest, a good software tool can handle the math. For high‑volume traders, institutional investors, or cross‑border portfolios, consulting a specialist like Gordon Law Group can prevent costly errors.

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• crypto tax loss harvesting
• capital gains tax
• wash sale rule
• cryptocurrency tax
• tax loss harvesting guide