Cryptocurrency Tax Loss Harvesting: Cut Your Tax Bill

Cryptocurrency investors know that the market can be volatile. But even in a down year, there's a silver lining: tax loss harvesting. This strategy can help you reduce your tax liability by offsetting capital gains with capital losses, potentially saving you thousands.

In this blog post, we’ll break down what crypto tax loss harvesting is, how it works, legal considerations, and how to implement it effectively.

What is Tax Loss Harvesting?

Tax loss harvesting is the process of selling investments at a loss to offset gains made on other investments, thus reducing your taxable income. It’s a common strategy in the world of stocks and bonds—and it applies to cryptocurrencies too.

In the U.S., the IRS treats cryptocurrency as property, meaning capital gains tax rules apply to crypto sales.

How Tax Loss Harvesting Works for Crypto

Let’s say you bought Bitcoin at $40,000 and sold it at $30,000, realizing a $10,000 capital loss. You can use that $10,000 loss to:

• Offset any capital gains you realized in the same year (from crypto, stocks, NFTs, etc.)
• Offset up to $3,000 of regular income if your losses exceed your gains
• Carry forward any unused losses to future tax years

Wash Sale Rule: Does It Apply to Crypto?

Here’s where crypto differs from stocks: the Wash Sale Rule, which prevents investors from claiming a loss if they buy the same security within 30 days, does not currently apply to crypto.

That means you could withdraw a crypto asset at a loss and immediately buy it back, harvesting the tax loss while maintaining your portfolio exposure.

⚠️ Caveat: This loophole may not last. Lawmakers have discussed extending the wash sale rule to crypto. Always consult a tax professional to ensure compliance.

Example Scenario

Suppose you had the following trades in 2025:

• Sold ETH at a $5,000 profit
• Sold SOL at a $3,000 loss
• Sold BTC at a $2,500 loss

Your total capital gains would be:

$5,000 (gain) - $3,000 (loss) - $2,500 (loss) = -$500 net capital loss

Instead of owing taxes on the $5,000 ETH profit, you now have a net loss, which you can use to reduce taxable income.

Key Benefits of Crypto Tax Loss Harvesting

• Lower capital gains taxes
• Offset income taxes (up to $3,000/year)
• Defer taxes by reinvesting immediately
• Preserve portfolio allocation (no wash sale rule)

Best Practices for Crypto Tax Loss Harvesting

1. Track Your Trades: Use crypto tax software like CoinTracker, Koinly, or CoinLedger to monitor your gains and losses in real time.
2. Harvest Strategically: Look for underperforming assets you don’t expect to recover soon or that you’re comfortable rebuying.
3. Watch Fees and Slippage: Don’t let transaction costs outweigh your tax savings.
4. Keep Records: Document every trade and its intent for tax loss harvesting.
5. Consult a Tax Pro: Especially if you're dealing with large amounts or complex portfolios.

When to Harvest Crypto Losses

• Year-end (Q4) is the most common time to harvest losses
• Mid-year dips can also present great opportunities
• Before selling high-gain assets, harvest losses to neutralize the gain

Final Thoughts

Tax loss harvesting isn’t just for Wall Street—it’s a powerful tool for crypto investors, too. With the current tax code allowing you to rebuy coins immediately, 2025 could be the perfect time to take advantage, especially if your portfolio has taken a hit.

Start planning now. A few smart moves before the end of the year could lead to major tax savings—and position your portfolio for the future.

Need Help?

We recommend consulting a CPA or crypto tax professional to tailor a harvesting strategy to your financial goals and risk profile.