Don’t Let the Wash Sale Rule Inflate Your Tax Bill: Crypto Tax CPA Firm Explains

Under IRC §1091, the wash sale rule is an IRS regulation that disallows claiming a loss on the sale of stock or securities if "substantially identical" shares are purchased within 30 days before or after that sale. Technically, the wash sale rule doesn’t apply to digital assets like cryptocurrency since the IRS also classifies them as property. As such, our crypto tax CPA firm has come across many traders who assume they can sell at a loss and immediately buy back to lower their tax bill. However, these repurchases only created complications and increased their liability. Let’s go through how the wash sale rule can impact crypto tax compliance.

1. Key Takeaways

• The wash sale rule under IRC §1091 does not technically apply to cryptocurrency, but rapid sell-and-repurchase activity can still create tax complications.
• Aggressive loss harvesting without meaningful portfolio change may trigger IRS scrutiny under broader anti-abuse rules like the economic substance doctrine.
• A specialized crypto tax CPA firm can structure compliant tax-loss strategies that reduce liability while minimizing audit risk.

2. What is the Wash Sale Rule for Crypto?

The wash sale rule is a tax rule enforced by the IRS to stop investors from creating artificial losses just to lower their tax bill. In simple terms, if you sell an investment at a loss and buy the same (or a very similar) investment within 30 days, you normally can’t claim that loss right away. For cryptocurrency, however, the IRS currently treats it as property. So this rule generally doesn’t apply, as it’s intended for securities. And while this means that crypto investors can sell at a loss and repurchase quickly, future tax law changes could alter this treatment, especially since the IRS currently expects more transparency in crypto tax reporting.

3. How Wash Sale Timing Can Increase Your Tax Bill

You did not read that wrong. The whole point of selling crypto at a loss is to reduce your taxable gains. But if you sell and repurchase the same or substantially similar position too quickly, the tax benefit might get overridden.

How? In some cases, the loss becomes deferred and is added back into the cost basis of the new position. That means the tax benefit moves to a future tax year instead of reducing your current liability. So if you were relying on that loss to offset short-term gains, the result can be an unexpectedly higher tax bill.

Especially in 2026, reporting requirements for cryptocurrency activities have increased under the Infrastructure Investment and Jobs Act. This means sale and repurchase patterns that don’t adhere to the wash sale rule are more visible than they were just a few years ago.

Considering how the wash sale rule still doesn’t apply to crypto technically, not every loss will be denied. However, timing will matter. If your transaction does not meaningfully change your economic position, the IRS can raise questions under broader anti-abuse principles such as the economic substance doctrine under IRC §7701(o). This is where a reliable crypto tax CPA firm comes in with their expertise in careful tax planning.

4. Smarter Crypto Tax-Loss Harvesting in 2026

Now to put things in perspective, crypto tax loss harvesting has always been a legitimate tax planning tool. But applying tax-saving strategies responsibly is necessary this year. An experienced cryptocurrency accountant will structure your taxes to reduce tax liability while maintaining compliance.

For example, instead of immediately buying back the same asset, which can raise questions, your crypto tax CPA will review transactions to produce a genuine portfolio decision. With their background in cryptocurrency accounting, they can rebalance, temporarily diversify, or adjust waiting periods to align with a broader investment strategy. In this manner, even if circumstances of the wash sale rule change in the future, you can remain confident with your crypto tax reporting.

5. What a Crypto Tax CPA Firm Does to Reduce Tax Liability

Crypto investors transact across multiple exchanges, wallets, DeFi protocols, staking platforms, and NFT marketplaces. Each of these transactions affects basis, timing, and reporting consistency.

A specialized crypto tax CPA firm looks at the full picture by:

• Reconciling activity across platforms.
• Reviewing crypto transaction patterns in addition to isolated trades.
• Evaluating whether tax loss strategies reflect meaningful portfolio changes.
• Modelling tax outcomes before filing.

Most importantly, an experienced crypto tax accountant will assess whether your positions would be defensible if reviewed.

So the question in 2026 is not simply “Does the wash sale rule apply to crypto?”

Let’s rephrase it:

“Is my crypto tax strategy aligned with IRS guidelines and broader anti-abuse principles?”

Now this is a different crypto accounting standard and one that requires expertise in digital asset reporting.

6. At Onchain Accounting, We Plan Taxes Before Problems Start

As discussed earlier, small timing decisions affect tax outcomes severely. When you hire a crypto tax accountant or CPA, they are responsible for building clear and defensible strategies that reduce unnecessary risk while preserving legitimate tax benefits.

Operating exclusively as a crypto tax CPA firm serving investors, traders, and fintech businesses, Onchain Accounting has helped thousands of clients achieve their financial goals while staying compliant.

If you are actively using cryptocurrency in your business or trading activities and harvesting losses, it’s always a wise idea to get your strategy reviewed by a crypto tax expert. Let’s make sure your losses are not being deferred with an inflated tax bill coming your way.

Book a free consultation for a crypto tax strategy review now.