Bear markets feel bad. They are also the single best opportunity the tax code gives a regular investor. Selling your losers, capturing the loss on paper, and immediately buying back the same exposure is how wealthy clients turn drawdowns into refunds. Bitcoin, for now, is the cleanest asset in the portfolio for this.
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Sell positions showing a loss. That realized loss offsets capital gains dollar for dollar, plus up to $3,000 of ordinary income per year. Anything left over carries forward indefinitely. For stocks, you cannot rebuy a "substantially identical" security within 30 days (wash sale rule). For Bitcoin, that rule does not apply - you can sell and rebuy in the same minute. Congress keeps threatening to close this. Use it while you can.
Not a CPA. The current absence of the wash-sale rule for crypto is based on IRS property classification and has been a legislative target for years. Confirm current status before relying on it.
Tax-loss harvesting is selling an investment at a loss so you can use that loss to reduce your tax bill. Losses offset gains of the same type first (long-term with long-term, short-term with short-term), then cross over to the other type. After that, up to $3,000 per year can offset ordinary income [VERIFY IRS limit]. Remaining losses carry forward with no expiration.
A $30,000 harvested loss in a bear market year can shelter $30,000 of gains from your next bull market. If you never realize $30K of gains, it shelters $3,000/year of ordinary income for the next decade. Either way, the loss is not wasted.
Section 1091 of the Internal Revenue Code says: if you sell a security at a loss and buy a "substantially identical" security within 30 days before or after the sale, the loss is disallowed. Instead, it gets added to the cost basis of the replacement shares.
The usual workaround for stocks: sell VOO, buy a different-but-similar fund (IVV is too similar - but an S&P 500 fund from a different provider with different methodology may or may not be safe - tread carefully). Wait 31 days, switch back if you want.
The IRS treats Bitcoin as property, not a security (IRS Notice 2014-21). The wash-sale rule in Section 1091 is written specifically for securities. It does not apply to property.
That means: you can sell 1 BTC at a loss, capture the loss for tax purposes, and buy 1 BTC back ten seconds later. Your position is unchanged. Your market exposure is unchanged. Your tax position is dramatically better [VERIFY current IRS guidance as of 2026].
This is not a loophole, a trick, or a grey area. It is how the law is currently written. Every CPA who works with crypto clients uses it. What makes it special is that it applies cleanly to the single most volatile legal asset most investors own - guaranteeing multiple harvest opportunities per decade.
Do this in every meaningful drawdown. The math compounds across cycles.
At a 24% marginal rate applied to $3K/year, that is ~$720 of direct tax savings per year, for 10 years. If used against future capital gains at 20% plus NIIT, it is closer to $7,100 in one shot.
The crypto wash-sale loophole has been a target since at least 2021. The Build Back Better framework in 2021, the Biden FY budgets, and multiple standalone bills have all proposed extending wash-sale rules to digital assets [VERIFY 2026 status]. None have passed as of this writing, but the pressure is real.
Planning note: treat this like an expiring tax benefit. Harvest aggressively while it exists. If legislation passes, it will almost certainly be prospective - but do not bet the strategy on that.
Not a loophole in the pejorative sense. It is how the law reads, as written. The IRS knows. Congress knows. Use it honestly while it is legal.
Reminder: not tax advice. For anything material, hire a CPA who works with crypto clients.
Last updated 2026-04-14. Not legal or tax advice. For anything material, hire a CPA.