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There are various sources indicating that in the United States, the Wash Sale rule does not apply to Cryptocurrencies as they are considered property rather than securities. Does that mean that it is permissible, to sell a crypto currency position that is down, thereby realizing the loss, immediately buy it back, and use the "harvested loss" to offset realized capital gains elsewhere? If this is indeed permissible, it would seem that one could simply sell and rebuy every time a position is sufficiently down (because this would be strictly better than to just hold it) possibly generating large amounts of realized losses. What's the catch?

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What's the catch?

No catch. According to Kiplinger, the current IRS interpretation is not to treat cryptocurrencies as securities (See: IRC Sec 475(c)(2)), and as such the wash sale rule doesn't apply. The wash sale rule is codified in IRC Sec. 1091, and explicitly specifies that it applies to stocks and securities. The proposal to close this loophole was in the BBB bill, which stalled in Congress for now.

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  • Interesting. Assuming one has realized gains from the sale of stocks, which are considered securities, could those be offset (for tax purposes) with realized losses from crypto (even if they have been generated as described above, i.e. sale at a loss with immediate re-purchase)?
    – NingNing
    Mar 25 at 1:24
  • @NingNing according to the current position the IRS has taken - yes. Economically this is essentially tax deferral.
    – littleadv
    Mar 25 at 4:34

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