Cryptocurrency is treated as property by the IRS. That means every trade is a taxable event, and losses can be harvested to offset gains — but the rules are nuanced and change with IRS guidance updates.
How Tax-Loss Harvesting Works in Crypto
If you bought BTC at $60,000 and it's now at $45,000, you have a $15,000 unrealized loss. You can sell, realize the loss, and immediately buy back an equivalent position. You netted a capital loss that offsets capital gains. The position is back — the tax event is captured.
The Wash Sale Rule — Does It Apply to Crypto?
As of current IRS guidance, the wash sale rule applies to securities (stocks, bonds, ETFs) but NOT to cryptocurrency — yet. Legislation has been proposed to extend wash sale rules to digital assets, but it has not been enacted as of June 2026. Harvest crypto losses with more confidence than stock losses — the rules are more favorable. For comprehensive transaction tracking and tax reporting, a dedicated crypto tax tracking tool handles the complexity of hundreds of transactions across multiple exchanges.
Offset Limits
Net capital losses offset net capital gains. If you have $3,000 in net losses above gains in a year, you can deduct $3,000 against ordinary income (wages, etc.). Unused losses carry forward indefinitely.
Reporting Requirements
Every crypto transaction must be reported on Form 8949. Use software (CoinTracker, Koinly, or TaxBit) to generate the correct forms — manual tracking becomes impossible at scale. Exchanges issue 1099s for transactions above the reporting threshold, but you're responsible for all transactions regardless.