Crypto and the Wash Sale Rule: Where Things Stand for 2026

If you sell stock at a loss and buy it back within 30 days, Section 1091 disallows the loss. That is the wash sale rule. As of the 2026 tax year it still does not apply to cryptocurrency, and that gap is the basis of a widely used tax-loss harvesting strategy.

It is worth understanding why the gap exists, because that also tells you how durable it is.

Why the rule does not reach crypto

Section 1091 is written narrowly. It applies to a loss on the sale of stock or securities where you acquire substantially identical stock or securities within 30 days before or after the sale.

The IRS has treated convertible virtual currency as property, not as stock or a security, since Notice 2014-21. Property that is not a security falls outside the text of Section 1091. That is the whole argument, and it is a straightforward reading rather than an aggressive one.

The practical result: you can sell Bitcoin at a loss on a Tuesday, recognize the capital loss, and repurchase the same amount on Wednesday. Your economic position is unchanged. The loss is still recognized.

What the loss is worth

Capital losses first offset capital gains of the same character, then the other character, then up to $3,000 a year against ordinary income. Anything above that carries forward indefinitely.

For a contractor who sold a piece of equipment or a piece of property at a gain, harvested crypto losses can offset that gain directly. That is where the real money usually is, not in the $3,000 ordinary income offset.

The parts that get glossed over

• You need accurate basis by lot. Harvesting only works if you know which units you are selling and what you paid for them. Specific identification requires records made at the time of the sale, not reconstructed in April.
• Reporting has tightened. Brokers now issue Form 1099-DA for digital asset transactions, and cost basis reporting began for acquisitions on or after January 1, 2026. Your reported numbers and the IRS’s reported numbers will increasingly need to match.
• Wallet-by-wallet accounting. Basis tracking is now generally required per account or wallet rather than universally across everything you hold. If you moved assets between wallets, this affects which lots you can identify.
• Transaction costs are real. Spread, gas fees and exchange fees can eat a meaningful share of a small harvest. Run the math before doing this on a small position.
• State treatment can differ from federal in a handful of states.

The honest caveat

Two things make this less settled than the confident posts suggest.

First, Congress keeps trying to close it. Bills to extend the wash sale rule to digital assets have been introduced repeatedly, and several are live in the current Congress, including the Applying Existing Tax Anti-Abuse Rules to Digital Assets Act. None has been enacted. The strategy is legal today because a bill is not a law, but this is a rule that has been on the chopping block in every recent revenue proposal, and it could change with little notice.

Second, a minority of practitioners argue that selling and instantly repurchasing with no change in economic position could be challenged under the economic substance doctrine or as a sham transaction, independent of Section 1091. There is no authority applying that to crypto harvesting, and the mainstream position is that the plain text of Section 1091 controls. But anyone telling you the outcome is guaranteed is overstating it. If you want more distance from the argument, waiting a period before repurchasing, or buying a different asset with correlated exposure, costs you some tracking risk and buys you a cleaner position.

We will tell you where the ambiguity is rather than give you a clean answer that might be wrong.

The short version

The wash sale rule applies to stock and securities. The IRS treats crypto as property, so Section 1091 does not currently reach it, and you can sell at a loss and repurchase immediately. Losses offset capital gains first and up to $3,000 of ordinary income after that. Keep clean per-wallet basis records, expect Form 1099-DA to match against your return, and understand that Congress has repeatedly proposed closing this and may eventually do it.

General information current as of August 2026, not tax advice for your situation, and not investment advice. Digital asset rules are changing quickly; confirm the position before acting. Accounting Solutions LLP works with construction contractors nationwide.

Disclaimer: This content is provided for educational purposes only and is not legal, tax, accounting, or financial advice. Every situation is unique, so consult your own attorney, CPA, or financial advisor before making decisions based on this information.