Tax-loss harvesting is the single highest-ROI activity in crypto tax planning. Sell losing positions to realise the loss, offset gains in the same year, carry forward unused losses to future years. For active crypto users, this saves thousands of dollars annually.
How it works
- Identify positions with unrealised losses (current price < cost basis).
- Sell to realise the loss.
- Offset capital gains in the same year, dollar-for-dollar.
- If losses exceed gains, deduct up to $3,000 (US) against ordinary income; carry the rest forward.
- Repurchase the same or a similar asset (in the US, no wash sale rule on crypto yet — see caveat below).
Wash sale caveat
Stocks have a 30-day wash sale rule — selling and rebuying within 30 days disallows the loss. Crypto is currently exempt under US federal law, but proposed legislation has repeatedly tried to extend the rule. Treat the exemption as potentially temporary; some state-level audits already apply analogous rules.
When to harvest
- End-of-year — Most users do this in December to lock in losses before tax year closes.
- After a market drawdown — If multiple positions are deeply red, harvest in batches.
- Before a large planned sale — Realise losses to offset the upcoming gain.
Common mistakes
- Forgetting to track basis — without correct cost basis, you cannot identify the loss accurately.
- Harvesting on assets you would not want to rebuy — you should still believe in the position.
- Selling all positions in one transaction — using specific ID lets you keep some lots and sell others.
- Doing it for tiny amounts — gas and complexity often outweigh sub-$50 loss realisations.
Tools
Koinly, CoinTracker, CoinLedger, and TokenTax all support tax-loss harvesting analysis. They identify positions with the best harvest potential and run scenario analysis.
See our crypto taxes 101 and tax-efficient crypto selling.
