Tax-loss harvesting is one of the most powerful crypto tax strategies. By selling at a loss, you can offset gains and reduce your tax bill.
Here’s how it works, the rules, and real examples.
How Tax-Loss Harvesting Works
Step 1: Identify Losses
Find crypto positions that are below your purchase price:
| Asset | Bought At | Current Price | Loss |
|---|
| BTC | $40,000 | $35,000 | -$5,000 |
| ETH | $3,000 | $2,200 | -$800 |
| SOL | $100 | $70 | -$300 |
Step 2: Sell to Harvest
Sell the losing positions to realize the losses:
| Sale | Loss Realized |
|---|
| Sell BTC | $5,000 loss |
| Sell ETH | $800 loss |
| Sell SOL | $300 loss |
| Total | $6,100 losses |
Step 3: Offset Gains
Use the losses to offset your gains:
| Gains | Losses | Net Taxable |
|---|
| $10,000 (sold NFT) | $6,100 (harvested) | $3,900 |
Step 4: Reinvest
Buy back into crypto (but not the same coin within 30 days):
| Instead Of | Buy This |
|---|
| BTC | GBTC or MSTR stock |
| ETH | stETH or rETH |
| SOL | mSOL or jitoSOL |
The Rules
US: Wash Sale Rule
| Rule | Details |
|---|
| What | Can’t buy same “substantially identical” security within 30 days |
| When | Applies to crypto (IRS proposed rules) |
| Penalty | Loss disallowed |
| Workaround | Buy different crypto or ETF |
UK: Same-Day Rule
| Rule | Details |
|---|
| Same-day rule | Can’t offset if you buy same crypto same day |
| 30-day rule | Can’t offset if you buy within 30 days |
| Bed and breakfasting | Old rule, still applies |
| Workaround | Buy different crypto or wait 30 days |
Canada: Superficial Loss Rule
| Rule | Details |
|---|
| What | Can’t claim loss if you buy same property within 30 days |
| Window | 30 days before and after sale |
| Penalty | Loss added to cost basis of new shares |
| Workaround | Buy different crypto or wait |
Tax-Loss Harvesting Example
Before Harvesting
| Event | Amount |
|---|
| Sold ETH for $15,000 profit | +$15,000 |
| Sold NFT for $5,000 profit | +$5,000 |
| Total gains | $20,000 |
| Tax at 20% | $4,000 |
After Harvesting
| Event | Amount |
|---|
| Sold ETH for $15,000 profit | +$15,000 |
| Sold NFT for $5,000 profit | +$5,000 |
| Sold losing BTC | -$8,000 |
| Sold losing SOL | -$2,000 |
| Net gains | $10,000 |
| Tax at 20% | $2,000 |
Savings: $2,000
When to Harvest
| Market Condition | Strategy |
|---|
| Market down 20%+ | Harvest all losses |
| Year-end (Nov-Dec) | Review for harvesting |
| After big gains | Offset with losses |
| Any time losses exist | Consider harvesting |
What You Can Harvest
| Asset | Taxable Event | Loss Amount |
|---|
| Crypto sold at loss | Yes | Full loss |
| NFT sold at loss | Yes | Full loss |
| DeFi position closed | Yes | Full loss |
| Staking rewards sold | Yes | Gain/loss on rewards |
What You Can’t Harvest
| Situation | Why |
|---|
| Unrealized losses | Must sell to harvest |
| Lost keys | No taxable event |
| Stolen crypto | Theft loss (limited deduction) |
| Gifted crypto | No disposal |
Summary
| Key Point | Takeaway |
|---|
| What | Sell at loss to offset gains |
| US rule | 30-day wash sale rule (proposed) |
| UK rule | 30-day bed and breakfasting rule |
| Canada rule | Superficial loss rule |
| Best time | Market down 20%+ or year-end |
| Savings | Can save 20-37% on harvested losses |
This content is for educational purposes only. Not financial advice. Do your own research before investing.