Glossary / Regulation & tax
Wash sale
- Definition
- A wash sale is a loss the tax code refuses to let you claim because you bought the same thing straight back, and the US rule still does not cover bitcoin.
Section 1091 of the US tax code disallows a loss on stock or securities repurchased within 30 days either side of the sale, a 61-day window. Bitcoin is property rather than a security, so the rule has never applied to it, and the bills written to extend it have not become law. Selling at a loss and buying straight back is therefore legal for coins and blocked for shares.
How it works
The wash sale rule defers a loss rather than denying it. When the rule bites, the disallowed loss is not destroyed: it is added to the basis of the replacement holding, and the original holding period carries across, so the deduction resurfaces whenever you finally exit the position for good. The trigger is buying something substantially identical inside the window, and that includes purchases by your spouse or by a company you control.
Bitcoin sits outside because of a classification made a decade before anyone was harvesting crypto losses. The Internal Revenue Service ruled in Notice 2014-21 that virtual currency is property for federal tax purposes, and property is not stock or securities. The consequence is that a holder can sell at a loss on Monday, book the deduction, and repurchase the same quantity on Tuesday at almost the same price, keeping both the position and the tax benefit.
Legislators have noticed. A version of the extension passed the House inside the Build Back Better Act in November 2021, the wider bill never became law, and similar language has reappeared in draft digital asset tax proposals since. None of it is enacted, and none of it has been applied retroactively.
Where you see it
Loss harvesting is the practice this rule exists to police, and in crypto it shows up as a December habit.
Tax software aimed at coin holders will happily generate a list of lots sitting below their purchase price and invite you to realize them before the year closes. The mechanics are sound in a jurisdiction with no equivalent rule, but three costs get understated. Trading fees and spread apply on both legs, so a round trip on a retail buying app charging around 1 percent per side eats a meaningful slice of the benefit. The price can move while you are out of the position, and a sharp move up is expensive. And the paperwork multiplies, because every harvest creates a fresh lot with a fresh acquisition date, resetting the clock that decides whether your eventual gain is taxed at long-term rates.
Outside the United States, assuming no rule exists is a mistake. The United Kingdom applies same-day and 30-day matching to crypto-asset pools, so a repurchase inside that window is matched against the disposal rather than pooled, which removes most of the benefit. Other systems run their own versions under different names. Check the country page and a local adviser before treating a December sale as free money.
Wash sale vs a spot ETF loss
The wash sale rule does reach one bitcoin-adjacent instrument: the exchange-traded product. Shares in a spot bitcoin fund are securities, whatever they hold underneath, so section 1091 applies to them in the ordinary way: sell fund shares at a loss and buy them back within the 61-day window and the deduction is deferred. Selling the fund and buying actual bitcoin, or the reverse, is a harder question that turns on whether the two are substantially identical, and it has not been settled by the Service or the courts. The safe reading is that the wrapper decides the rule, and the wrapper you sold is the one that matters.