A Unique Tax Advantage for Cryptocurrency Investors May Soon Go Away



Why Crypto’s Losses Present an Opportunity

Since May 2021 Bitcoin (BTC) has tumbled from its all-time highs, as have other cryptocurrencies. Although this is not ideal for investors, the downturn may present an opportunity. The IRS currently classifies cryptocurrency as property. Therefore, at the moment, taxes on crypto sales are subject to the same capital gains and losses as that asset class.

Notably, this means that crypto escapes a well-known rule that applies to financial securities: the “wash-sale rule.” One option investors might consider for cryptocurrency positions at a loss is to sell the asset and then immediately buy it back — recording the loss for tax purposes, but remaining invested in the asset.

How the “Wash-Sale Rule” Makes Stocks Different

Securities, like stocks, are subject to a specific rule concerning their sale and immediate buyback, as it applies to taxable losses. Investors that want to sell stock at a loss and count that against capital gains must wait 30 days before buying back the same asset or one that’s substantially similar. This “wash-sale rule” came into effect as a result of the IRS objecting to people “gaming the system” by securing losses that offset taxes.

The goal of the rule is to prevent “artificial losses” tied into investing and taxable income. The wash-sale rule applies to stocks, bonds, ETFs, and other financial instruments that are traded on exchanges. Currently, cryptocurrency remains unaffected by the 30-day window.

Crypto Loophole Remains For Now

Investors may find the current tax laws governing cryptocurrencies advantageous concerning a strategy known as tax-loss harvesting. Assets sold at a loss can be used to offset capital gains elsewhere. With crypto prices potentially below where investors bought them, selling in order to harvest the loss can be done without worrying about the wash-sale rule implications.

For those planning to remain invested in cryptocurrency over the long term, immediately buying back that same asset retains the position while positioning the loss against capital gains. Analysts note it’s possible legislation will forbid this practice in the future, much in the same way the IRS broadened its definition of a “wash sale” in 1993. But for the time being, this unique aspect of crypto investing could provide an opportunity when it comes to taxable gains.

Buy crypto in minutes and safely trade BTC, ETH, DOGE, DOT, ADA, and more coins on SoFi Invest®

Start trading



Crypto: Bitcoin and other cryptocurrencies aren’t endorsed or guaranteed by any government, are volatile, and involve a high degree of risk. Consumer protection and securities laws don’t regulate cryptocurrencies to the same degree as traditional brokerage and investment products. Research and knowledge are essential prerequisites before engaging with any cryptocurrency. US regulators, including FINRA , the SEC , the CFPB , have issued public advisories concerning digital asset risk. Cryptocurrency purchases should not be made with funds drawn from financial products including student loans, personal loans, mortgage refinancing, savings, retirement funds or traditional investments. Limitations apply to trading certain crypto assets and may not be available to residents of all states.

Tax Information: This article provides general background information only and is not intended to serve as legal or tax advice or as a substitute for legal counsel. You should consult your own attorney and/or tax advisor if you have a question requiring legal or tax advice.
Please understand that this information provided is general in nature and shouldn’t be construed as a recommendation or solicitation of any products offered by SoFi’s affiliates and subsidiaries. In addition, this information is by no means meant to provide investment or financial advice, nor is it intended to serve as the basis for any investment decision or recommendation to buy or sell any asset. Keep in mind that investing involves risk, and past performance of an asset never guarantees future results or returns. It’s important for investors to consider their specific financial needs, goals, and risk profile before making an investment decision.
The information and analysis provided through hyperlinks to third party websites, while believed to be accurate, cannot be guaranteed by SoFi. These links are provided for informational purposes and should not be viewed as an endorsement. No brands or products mentioned are affiliated with SoFi, nor do they endorse or sponsor this content.
Communication of SoFi Wealth LLC an SEC Registered Investment Advisor
SoFi isn’t recommending and is not affiliated with the brands or companies displayed. Brands displayed neither endorse or sponsor this article. Third party trademarks and service marks referenced are property of their respective owners.
SOSS22021601


All your finances.
All in one app.

SoFi QR code, Download now, scan this with your phone’s camera

All your finances.
All in one app.

App Store rating

SoFi iOS App, Download on the App Store SoFi Android App, Get it on Google Play

ABOUT Meg Richardson Meg Richardson is a writer specializing in markets, technology, and personal finance. She loves breaking down seemingly complex ideas and making them readable and interesting for everyone. She holds an MFA in writing from Columbia University. When she is not writing about finance, she enjoys running in Central Park and drawing cartoons.


TLS 1.2 Encrypted
Equal Housing Lender