Crypto tax-loss harvesting and the wash-sale rule, explained

What is crypto tax-loss harvesting?

The tax code has no section called harvesting. It has a loss that exists on paper, and a loss that exists on the return, and the difference between them is a sale. For federal tax purposes virtual currency is property, and the general tax principles for property transactions apply to it [10]. A sale of it is a capital gain or loss, subject to the limits on deducting capital losses [9].

The size of the loss is arithmetic. Gain or loss is the difference between the adjusted basis in the coins sold and the amount received for them [9]. A position that fell in value and was not sold has no number on the return at all. Harvesting is the name people use for selling on purpose so the loss becomes real.

Losses are counted by tax year. Section 1222 defines net short-term and net long-term gain or loss as the excess of one over the other for the taxable year [4]. A loss realized in one year is that year’s loss, and what the return does with it is the next section.

How is a realized crypto loss used?

The first sort is by holding period. A capital asset held for not more than one year gives a short-term gain or loss; held for more than one year, long-term [4]. The IRS reads the holding period as starting the day after the coins were acquired and ending on the day they are sold [9]. Short-term sales go in Part I of Schedule D and long-term sales in Part II [6].

The second sort is the netting. The net short-term result on line 7 of Schedule D is combined with the net long-term result on line 15, and the total lands on line 16 [5]. A short-term crypto loss can absorb a long-term stock gain on that line. Nothing in the netting asks what kind of property produced the number.

The third step is the cap. Section 1211(b) allows capital losses to the extent of capital gains, plus the lower of $3,000 ($1,500 for a married individual filing a separate return) or the excess of the losses over the gains [2]. The Schedule D instructions say the same in plain words: losses up to the gains plus $3,000, and the rest may be usable in future years [6].

The rest is the carryforward, and it keeps its character. Under section 1212(b), the excess of the net short-term loss over the net long-term gain becomes a short-term loss in the next year, and the excess of the net long-term loss over the net short-term gain becomes a long-term loss in the next year [3]. Publication 550 adds that a carried long-term loss reduces the next year’s long-term gains before its short-term gains, and that the loss carries to later years until it is used up [5].

The carryover is figured whether or not the deduction was claimed. Publication 550 says the current year’s allowable deduction is taken into account in figuring the carryover, whether or not it was claimed and whether or not a return was filed [5]. Its example is a $7,000 capital loss against $26,000 of taxable income: $3,000 is deducted on the 2025 return and the unused $4,000 carries to 2026 [5].

Does the wash-sale rule apply to crypto?

Section 1091 is titled Loss from wash sales of stock or securities. Its text disallows a loss from the sale of shares of stock or securities when, within 30 days before or after the sale, the taxpayer acquired substantially identical stock or securities, unless the taxpayer is a dealer [1]. The disallowed loss is not gone: under section 1091(d) the basis of the replacement stock or securities is the basis of the ones sold, adjusted for the price difference [1].

Publication 550 restates it for a reader. A wash sale is a sale of stock or securities at a loss with a purchase of substantially identical stock or securities within 30 days before or after, including a purchase for an IRA or Roth IRA, and the disallowed loss is added to the cost of the new stock [5]. Its first example is 100 shares bought for $1,000, sold for $750, and bought back within 30 days for $800: the $250 loss is disallowed and the new basis is $1,050 [5].

Here is what the statute says about digital assets: nothing. The section as in effect on September 1, 2026 names stock or securities and does not name a digital asset [1]. Notice 2014-21 says virtual currency is treated as property [10]. That is the whole of what the primaries state, and this page prints no more than that.

The one place an IRS form applies section 1091 to a digital asset is narrow. Box 1i of the 2026 Form 1099-DA is Wash sale loss disallowed, and the instructions require it for tokenized securities that are treated as stock or securities under section 1091, when the sale and the purchase are in the same account with the same CUSIP number [8]. The Form 8949 instructions carry the matching code: a nondeductible wash-sale loss is entered as a positive number in column (g) with code W, and a wrong box 1i amount is corrected there [7].

One search on September 2, 2026 for an enacted change to section 1091 found none. A bill is not a statute, and this page cites statute text only. The statute page itself, which carries every law in effect on September 1, 2026, is the check [1].

Which lot is sold?

The size of the loss depends on which units the sale closes. The loss is the adjusted basis of the units sold minus what came back [9], so a sale of the units bought at the top realizes a larger loss than the same sale of units bought near the bottom. The record that names the lot is what decides the number.

Since January 1, 2025, basis is tracked wallet by wallet, and Rev. Proc. 2024-28 gave a safe harbor for allocating old basis into wallets as of that date [11]. Notice 2025-7 then let a holder identify the units sold through the holder’s own records, for the period from January 1, 2025 through December 31, 2025, and said that without an adequate identification the units in a broker’s custody are treated as sold first in, first out [12]. Notice 2026-20 extended that relief period to December 31, 2026 [13].

The cost-basis guide covers the allocation and the records behind each lot. A loss claimed on a lot the records cannot name is a number with nothing under it.

Where does it go on the return?

Each sale is a line on Form 8949. A short-term sale with a 1099-DA goes under box G when basis was reported to the IRS or box H when it was not; a long-term sale goes under box J or box K on the same split; a sale with no form goes under box I or box L, and the instructions say not to use box C or box F for digital assets [7]. The proceeds shown on the form go in column (d), basis in column (e), and any adjustment in column (g) with its code in column (f) [7]. The 1099-DA guide reads that form box by box.

Schedule D collects the lines. Codes G through L were added to lines 1b, 2, 3, 8b, 9, and 10 for digital asset transactions [6]. The short-term and long-term totals combine on line 16, and the deduction against other income is limited to $3,000 ($1,500 for a married person filing separately), with the instructions for line 21 covering the rest [6].

The carryover has a worksheet. Publication 550’s Worksheet 4-1 figures the capital loss carryover from 2024 to 2025 when the 2024 Schedule D line 21 shows a loss [5]. Tax software fills the same worksheet from the prior return.

What about worthless and rugged tokens?

Harvesting needs a sale. A sale of virtual currency is what makes a capital gain or loss [9], and a token still sitting in a wallet has not been sold. It is not on a 1099-DA either, because the form reports sales and nothing else [8].

A dust sale is a sale. A token sold at a broker for a few cents appears on the form with its proceeds in box 1f, and if it was bought before 2026 or moved in from a wallet, box 9 is checked and box 1g is blank [8]. The loss is the holder’s basis minus those proceeds, from records the broker never had.

A token that cannot be sold is the worthless-token guide’s question, not this page’s. The calculator runs the arithmetic on a basis and a sale price.