Lawmakers are again trying to extend the wash-sale rule to cryptocurrency, a change that would end one of the most widely used tax strategies among digital-asset investors. CNBC reported on July 28 that the Applying Existing Tax Anti-Abuse Rules to Digital Assets Act, introduced in June by Rep. Jodey Arrington, a Texas Republican, would apply the same restrictions to crypto that have long governed stocks and bonds. The renewed attention follows a steep decline in bitcoin, which CNBC said has lost roughly half its value since October 2025.

What would change

The wash-sale rule, which dates to 1921, disallows a loss when an investor sells a security and buys the same or a substantially identical one within a short window around the sale. The loss is not gone permanently; it is added to the basis of the replacement position. But it cannot be used to offset gains in the current year.

Because the IRS treats digital assets as property rather than securities, the rule does not reach them today. A crypto investor can sell a token at a loss, buy it back minutes later and claim the loss while keeping essentially the same exposure. The Arrington bill would remove that distinction.

The proposal is one of nine digital-asset tax measures released by the House Ways and Means Committee in June, according to a Tax Foundation analysis. Others would address reporting paperwork, mining and staking income, charitable gifts of digital assets and a voluntary disclosure program. The Tax Foundation broadly supports treating digital and traditional assets alike, but notes that deciding when two digital assets are substantially identical is harder in practice than in theory, and points to a companion bill that would use a substantial-identity standard.

Who is affected

The change would matter most to active traders and long-term holders with large unrealized losses in bitcoin, ether and other tokens, particularly those with capital gains elsewhere, such as from stock sales, business exits or real estate. The Tax Foundation estimates about one in five U.S. adults has invested in or used cryptocurrency.

The after-tax math

Treasury estimated in 2024 that applying wash-sale rules to digital assets would raise about $24 billion over a decade, a sign of how much loss harvesting the current gap enables.

Example, illustrative round numbers: an executive bought $400,000 of bitcoin that is now worth $200,000, and in the same year sold company stock held more than a year for a $200,000 gain. Under current law, she can sell the bitcoin, repurchase it immediately and use the $200,000 loss to offset the stock gain. At the 20% top long-term rate listed by the IRS, plus the 3.8% net investment income tax that applies to many high earners, that offset is worth about $47,600 this year, and her bitcoin position is unchanged. If the wash-sale rule applied, the same repurchase would disallow the loss for now, and the $47,600 of tax on the stock gain would be due, unless she stayed out of the position long enough to satisfy the rule.

Considerations for investors

  • Whether an effective date, if the bill advances, would apply to sales after enactment or reach back to an earlier date.
  • How repurchases on multiple exchanges, in wallets or through exchange-traded funds holding the same asset would be matched against sales.
  • Whether cost-basis records across exchanges and wallets are complete enough to document losses already harvested.
  • How any disallowed losses would carry into the basis of replacement tokens.

Households with sizable crypto positions may find it useful to review their records and loss positions with a CPA familiar with digital assets before year-end.

What to watch

The bill is one proposal among several, and its prospects likely depend on whether Congress assembles a broader digital-asset tax package. Its projected revenue could help offset the cost of other provisions, such as the de minimis exemption for small transactions proposed by Sen. Cynthia Lummis of Wyoming. Any effective date written into a final bill will determine how much year-end harvesting remains possible under current rules.

Sources

  1. First reported Congress renews push to end crypto wash sale tax loophole — CNBC
  2. Getting Crypto Tax Reform Right Means Prioritizing Neutrality — Tax Foundation
  3. Topic no. 409, Capital gains and losses — IRS

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