Sell a stock at a loss, then buy it back the next morning, and the IRS has an answer for that. The wash sale rule says if you sell a security at a loss and buy a "substantially identical" one within 30 days before or after, the loss doesn't count for that tax year. It gets added to the cost basis of the new position instead of applying against your income anywhere.
Do the same thing with crypto: sell Bitcoin at a loss on Monday, buy it back Tuesday morning. As of today, the loss is still yours to claim. No 30-day wait, no substantially-identical test, no disallowed deduction.
Why the wash sale rule skips crypto
The rule lives in the tax code as Section 1091, and it applies to "stock or securities." The IRS has treated cryptocurrency as property since its first formal guidance on the subject in 2014, not as a security. Property doesn't fall under Section 1091's literal text, so the rule doesn't reach it. That's not a workaround someone found or a gap in enforcement. It's what happens when a rule written for stocks and bonds meets an asset class it was never drafted to cover.
The practical effect is real and worth naming plainly: a crypto investor can do something a stock or ETF investor legally cannot. Realize a loss for tax purposes and stay in the exact same position the entire time, with no gap in market exposure and no need to find a similar-but-not-identical replacement to hold during a waiting period.
Say you're holding a position that's down 3,000 dollars from what you paid. Sell it, and that loss is available to offset gains elsewhere this year, or up to 3,000 dollars against ordinary income if you don't have gains to offset, with any excess carried forward. A stock investor in the same spot either sits out of the position for 31 days or buys something correlated but not identical to stay invested while the clock runs. A crypto investor harvesting the same loss today can just buy the position straight back.
This is a known gap, and it's had legislative attention
This isn't an obscure detail nobody's noticed. It shows up often enough in tax planning discussions that treating it as permanent would be a mistake. Congress has taken multiple runs at closing it over the past several years, including a proposal under active consideration in 2026, the Digital Asset PARITY Act, which would extend wash sale treatment to digital assets specifically. None of these proposals has become law as of this writing, and it's genuinely uncertain whether or when one will.
That uncertainty matters more than the current absence of the rule does. Anyone building a tax-loss harvesting habit around crypto's exemption should treat today's rules as today's rules, not a permanent feature of how crypto gets taxed going forward. If a version of the wash sale rule does eventually reach digital assets, a loss disallowed after that date won't come back by pointing at how things used to work the year before.
What this actually means for harvesting
None of this changes the core logic of tax-loss harvesting: sell a position that's down, realize the loss, use it to offset gains elsewhere or against ordinary income up to the annual limit. What's different for crypto, for now, is that there's no mechanical reason to sit out of a position after harvesting a loss on it, and no need to hunt for a correlated stand-in asset the way a stock investor does during the 30-day window.
That's a real, usable advantage today. It's also exactly the kind of rule that rewards using it while it's available rather than assuming it stays available on the same terms indefinitely. Harvesting a loss this year under current rules doesn't require betting on what Congress does next year, but it does mean the strategy is worth revisiting each tax season rather than set once and forgotten.
How Rebalance handles this
Rebalance's tax-loss harvesting scans your holdings for harvestable losses as part of the same pass that keeps your allocation on target, using HIFO lot selection specifically for TLH sells to maximize the loss realized. Cost basis and lot tracking are built from your exchange's own trade history, so the numbers stay accurate without manual reconciliation. Because no wash sale rule currently applies to the assets it trades, there's no waiting period or substitute-asset logic built in: a harvested position can be rebought immediately if that's where your target allocation says it belongs, with every trade previewed before it executes.
If that changes, because Congress closes the gap Section 1091 currently leaves open, that's a tax-law change that would apply to anyone holding digital assets, not something specific to how Rebalance operates. This isn't tax advice. Talk to a tax professional about how tax-loss harvesting, the wash sale rule, and any pending legislation apply to your specific situation.
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