What is the wash sale rule for cryptocurrency? (2024)

FAQs

What is the wash sale rule for cryptocurrency? ›

The IRS wash sale rule does not currently apply to cryptocurrency because it considers virtual currencies to be property rather than securities. This effectively means there is no rule prohibiting crypto wash sales at time of writing.

The IRS stipulates a 30-day waiting period before repurchasing an asset to avoid violating the wash sale rule. However, unlike traditional stocks and securities, many cryptocurrencies and NFTs aren't subject to this restriction since they aren't legally classified as securities.

Cryptocurrency is exempt from wash sale rules. The IRS classifies virtual currency as property.

At this time, the 30-day rule — or wash sale rule — does not apply to cryptocurrency. Are crypto sales subject to the wash sales rule? At this time, crypto sales are not subject to the wash sale rule. However, crypto wash sales may be disallowed if they are found to not have 'economic substance'.

You don't have to worry about day trading limits on crypto because they're not regulated by FINRA or the SEC like stocks and options.

To avoid a wash sale, the investor can wait more than 30 days from the sale to purchase an identical or substantially identical investment or invest in exchange-traded or mutual funds with similar investments to the one sold.

Can you legally day trade crypto? Buying, selling, and day trading cryptocurrency is legal in the United States and most other countries. However, you will be required to report your gains and losses from day trading on your tax return.

Q: How does the wash sale rule work? If you sell a security at a loss and buy the same or a substantially identical security within 30 calendar days before or after the sale, you won't be able to take a loss for that security on your current-year tax return.

Wash trading is a market manipulation technique where malicious traders try to drive an asset's value by artificially pumping its trading volume. Typically, a wash trader sends crypto between wallet addresses or exchange accounts they control to give the illusion of intense trading activity and high demand.

Can I sell crypto at a loss and buy back? ›

Since crypto isn't considered a capital asset, it's not subject to the rule. This means that if you've got losses built up but want to hold your crypto for the long term, you could sell your coin on a down day, realize the loss on your taxes and immediately buy it again.

Hold For At Least A Year

Ideally, you will plan your exit after your crypto investment has made significant gains.

One of the first signs to look out for is if there is any negative news regarding the coin you've invested in. Any negative PR from the corporate side, top management, or even the founder could instantly bring down the value of your coin.

The simplest way to bypass the rule is to wait 30 days after selling an asset and then before buying back. The IRS wash sale rule declares that if a trader sells a security at a loss and then repurchases within 30 days, the initial loss cannot be claimed for tax purposes.

The loophole here is that the wash sale rule does not apply to cryptocurrency transactions. As stated above, in the wash-sale rule, the IRS prohibits an investor from taking a tax deduction for losses on a security sold in a wash sale. Currently, the IRS defines crypto assets as property, not securities.

Is there a crypto wash sale rule? The IRS does have a wash sale rule. The US wash sale rule occurs when an individual investor sells or trades an asset at a loss and buys back a "substantially identical" asset within 30 days. If an investor does this - they cannot claim a capital loss.

For US cryptocurrency users, repurchasing crypto assets immediately after selling them triggers a crypto wash sale. This rule prevents investors from claiming tax losses on assets they still own. To comply with the wash sale rule, investors should wait at least 30 days before repurchasing an asset they've sold.

Q: How does the wash sale rule work? If you sell a security at a loss and buy the same or a substantially identical security within 30 calendar days before or after the sale, you won't be able to take a loss for that security on your current-year tax return.

On its surface, the wash sale rule isn't very complicated. It simply states that you can't sell shares of stock or other securities for a loss and then buy substantially identical shares within 30 days before or after the sale (i.e., for a 61-day period, since you count the day of the sale).

How can you minimize taxes on Bitcoin? One option is to hold Bitcoin for more than a year before selling. Because short-term capital gains taxes are higher, you'll pay higher taxes if you sell and realize a gain within a year.