Crypto (property) vs stock (security) — side by side
| Crypto (today's rule) | Stock (IRC §1091) |
|---|
If the loophole closes: repurchase-timing scenarios
Same loss, same tax rate — only how soon you could deduct it changes. This models what happens to the same crypto position if wash-sale-style rules were extended to digital assets.
| Scenario | Deduction timing | Present value of tax savings |
|---|
Why this loophole exists — and why it might not last
The wash sale rule (IRC §1091) was written for "stock or securities" decades before crypto existed. It disallows a tax loss if you sell at a loss and buy the same or a substantially identical security back within 30 days before or after the sale — the loss isn't gone, it's added to the replacement shares' cost basis and deferred until you eventually sell without triggering the rule again. The IRS has classified cryptocurrency as property (Notice 2014-21), not a security, so §1091's text simply doesn't reach it. The practical result: a crypto holder can sell at a loss and buy the identical coin back one second later, keep the exact same position, and still claim the loss on this year's return.
Congress has tried to close this gap repeatedly — it appeared in the 2021 Build Back Better bill and in multiple budget proposals since — and every attempt has stalled. That history matters for how you should treat this calculator's numbers: the tax savings shown for the "crypto" column are real under current law, but they are not guaranteed to stay available. If a future law does extend wash-sale treatment to digital assets, it could apply prospectively (only to trades after enactment) or, in a harsher version, retroactively disallow losses claimed in anticipation of the change — which is exactly the legislative risk the "if it closes" table above is trying to make concrete rather than abstract.
There's a second, separate risk that has nothing to do with future legislation: the IRS's general anti-abuse doctrines, including the step transaction doctrine, exist to disregard a series of transactions that have no economic substance beyond generating a tax benefit. Routine, modest-frequency tax-loss harvesting on a long-term holding has not been successfully challenged this way. Extremely high-frequency same-day round-trips with no other rationale sit closer to that line. None of this is tax advice — the numbers here are for planning conversations with a crypto-literate CPA, not a substitute for one.