What it is
The wash sale rule, codified in IRS Publication 550, prevents investors from artificially creating tax losses by selling an investment at a loss and then immediately repurchasing it. It disallows the loss if the investor acquires substantially identical stock or securities, including options and contracts, within a 61-day period surrounding the sale (30 days before, the day of sale, and 30 days after). If a wash sale occurs, the disallowed loss is added to the cost basis of the new, substantially identical security.
While historically applied to stocks and bonds, the IRS has stated that the wash sale rule did not apply to cryptocurrencies until 2024. The Infrastructure Investment and Jobs Act of 2021 amended the tax code, extending the wash sale rule to digital assets for tax years beginning after December 31, 2023. This change means investors can no longer sell crypto at a loss and immediately buy it back to claim a tax deduction, impacting tax-loss harvesting strategies.
Why it matters
This rule significantly impacts your ability to claim tax losses on crypto, potentially increasing your tax bill. Understanding it helps with tax planning.
Reviewed under editorial standardsUpdated September 26, 2026Not investment advice