Tax-loss harvesting looks like a way to erase a bad position, but it is really a timing decision. Selling a coin below its cost basis converts a paper loss into a realized loss that can offset taxable gains. How much the move is worth depends on which kind of gain it cancels, how the $3,000 ordinary-income cap treats the remainder, and whether the wash-sale rule or a pending bill stands in the way.
What the $3,000 cap actually means
Capital losses first offset gains of the same holding period, then the other period. Any remaining net loss reduces ordinary income by up to $3,000 a year, or $1,500 for married filers filing separately, with the excess carried forward. Because short-term gains are taxed at ordinary rates of up to 37% while long-term gains top out at 20%, a loss that cancels a short-term gain saves far more than one that only offsets a long-term gain. This is why harvesting late in the year can be worth more than the same trade made in January.
Coins are not stocks for the wash-sale rule today
The wash-sale rule reaches stock or securities, and the IRS treats cryptocurrency as property. Selling bitcoin held directly and buying it back the same day therefore does not defer the loss under current law. Spot bitcoin ETF shares are different: as securities, a repurchase within 30 days before or after the sale can disallow the loss and add it to the replacement shares’ basis. A repurchase inside a retirement account is worse. IRS Revenue Ruling 2008-5 holds that the loss is disallowed without increasing the IRA’s basis, so the deduction disappears entirely.
The bill that could reach backward
That boundary may move. On September 16, 2026, the House Ways and Means Committee voted 38–5 to report H.R. 10357, the Digital Asset Tax Certainty Act. Section 301 of the committee version would apply the wash-sale rules to traded digital assets for dispositions after September 14, 2026. The bill is a proposal, not law. As of late October 2026 it has not cleared the full House or the Senate, and it lapses if the current Congress ends without enacting it. The real risk is the effective date, which could reach sales already executed this fall.
Picking lots before the year closes
For coins held at an exchange, IRS Notice 2026-20 extends through December 31, 2026 the option to identify which units are sold, provided the choice is recorded no later than the time of sale. Without that identification, the IRS applies first-in, first-out order, which sells the oldest, often lowest-basis, units first and can erase the loss an investor hoped to realize.
A decision sequence that avoids surprises
Confirm the sale actually executes by December 31 rather than assuming the order settles in time. Net the loss against gains and know which rate applies before claiming the benefit. Treat a same-day coin repurchase as permitted today while weighing the retroactivity risk the bill introduces. Keep ETF repurchases outside the 30-day window, and never buy a matching ETF inside an IRA within that window. Finally, record each lot choice at the moment of sale so a first-in, first-out default cannot rewrite the trade afterward.
Adapted from Crypto Tax-Loss Harvesting Before December 31, 2026.