You sold ETH at a loss in November. Two days later you bought it back at a lower price, hoping to lock in the tax loss while keeping your position. Now your 1099-DA arrived and one of the lots has a wash sale flag on it. Did you just lose the deduction?
The short version: as of the 2025 tax year — the one you're filing in 2026 — IRC §1091, the wash sale rule, still does not apply to digital assets by statute. Crypto, NFTs, and most other tokens are outside its scope. But the picture is messier than that one sentence makes it sound, because some brokers report wash sales on Form 1099-DA anyway, the rule has come within a few votes of changing in three different congressional sessions, and the planning answer for tax-loss harvesting is not "ignore it." Here's the full picture, in order.
What the Wash Sale Rule Actually Says
IRC §1091 is the wash sale rule. It says that if you sell a "stock or security" at a loss and buy a "substantially identical" stock or security within 30 days before or after the sale, the loss is disallowed for the current tax year. The disallowed loss is added to the cost basis of the replacement lot, so you eventually get the deduction — just later, when you sell the replacement.
The triggering language is "stock or security." The IRS, in Notice 2014-21 and every guidance document since, has been clear that virtual currency is treated as property for federal tax purposes — not as a stock or security. By the plain text of §1091, the wash sale rule does not reach property. That's the statutory hook crypto traders have relied on since 2014 to harvest losses without the 30-day waiting period that stock holders face.
The IRS confirmed this position again in CCA 202316008 (March 2023), addressing a different fact pattern but reiterating that crypto is property and that §1091 applies to "stock or securities" only. No subsequent IRS guidance has changed that.
Form 8949 itself reflects the same reading. Column (f) accepts code W for wash sale loss disallowed, and the IRS Form 8949 instructions explain code W in the context of §1091 — the same context that excludes property dispositions. Code W does not mean "all wash sales"; it means "§1091 wash sales," which by current law is a stock-and-security concept.
Why Brokers Sometimes Flag Crypto Wash Sales Anyway
Here's the gap that confuses people. Even though the wash sale rule doesn't apply to crypto, a handful of brokers report wash sale data on Form 1099-DA. There are two reasons.
Conservatism. Some compliance teams treat the §1091 issue as unsettled and choose to over-report rather than under-report. Their reasoning: if the rule does eventually extend to crypto retroactively, or if a court rules unexpectedly, they would rather have surfaced the data than not. The 1099-DA was finalized late and the instructions for digital asset brokers don't specifically prohibit including a wash sale column.
Internal trade engines. A broker's risk and reporting system is often built on top of the same code that handles equities. If the lot-matching logic flags a 30-day repurchase regardless of asset class, those flags ride into the 1099-DA as a side effect. Some brokers strip them; some don't.
If your 1099-DA has a wash sale column populated for crypto, you have two choices when you file. The cautious path is to honor what the form says — apply code W, add the disallowed loss to the replacement lot's basis, and move on. This costs you a current-year deduction in exchange for matching the form the IRS receives. The aggressive path is to report your position on the merits — that §1091 doesn't apply to crypto by statute — and ignore the wash sale flag. If you do that, attach a statement explaining the deviation to reduce the chance of a CP2000 mismatch notice. Most filers in this situation pick the cautious path because the dollar difference is usually small and the audit cost of fighting it isn't worth it.
The crypto CSV to TXF converter preserves whatever wash sale flags appear in your aggregator's export — Koinly, CoinTracker, or directly from a 1099-DA. The TXF carries codes W and the corresponding 322/324 codes (short and long-term wash sale) into TurboTax Desktop unchanged. We don't add wash sale flags that aren't there, and we don't strip ones that are.
The Legislative History — How Close It's Come
The wash sale rule has come close to extending to crypto three times in the past five years.
- November 2021 — the House version of the Build Back Better Act included §138153, which would have explicitly applied §1091 to "digital assets" effective for tax year 2022. The provision passed the House but was stripped from the Senate's reconciliation package and did not become law.
- September 2022 — the same provision was reintroduced in standalone tax legislation circulated by the House Ways and Means Committee. It did not advance.
- 2024 — versions of crypto wash sale extensions appeared in two budget proposals from the Treasury Greenbook (the FY2024 and FY2025 editions), with effective dates ranging from "the year of enactment" to "tax years beginning after December 31, 2024." None were enacted.
The pattern is clear: there is bipartisan recognition that crypto tax-loss harvesting is a structural mismatch with how stock losses are treated, but the political appetite to close it has not lined up with a viable legislative vehicle. A future omnibus tax bill could change that with a single line of statutory text. If you're filing in 2026 for tax year 2025, none of those proposals apply to you. But you should track them if you're an active trader, because the change — when it comes — will likely be effective for the next full tax year, with no transitional grandfathering.
How to Plan Crypto Tax-Loss Harvesting Today
Three rules will keep you out of trouble for tax year 2025.
1. Document the round trip clearly. The IRS doesn't tax-disallow your loss, but it does notice if your transaction history looks like wash trading or step transactions designed purely to manufacture a loss. Sell, wait at least a few hours (some practitioners say a day), and rebuy. Keep the timestamps in your aggregator. If a deal looks economically circular — same wallet, same exchange, exact same quantity, immediate rebuy — be ready to explain it.
2. Be careful with "substantially identical" if §1091 ever does extend. The phrase "substantially identical" in §1091 has 90 years of case law behind it for stocks. For crypto, no one knows what it would mean. Is BTC substantially identical to wBTC? Is stETH substantially identical to ETH? These questions don't matter today, but if a wash sale extension passes, the answers will get worked out in regulations or audits — and harvesting positions held in wrappers might get caught up. The conservative move when harvesting at year-end: avoid moving from token A directly to a wrapper of token A. Wait the 30 days even though you don't have to.
3. Honor your aggregator's calculation if you don't override it. Koinly, CoinTracker, and CoinLedger all let you toggle "apply wash sale rule to crypto" — and most disable it by default for tax year 2025. If you've enabled it, the realized losses in your tax report already reflect the disallowance. If you've disabled it, the report shows the full loss. Don't mix and match: pick a position and apply it across every disposal in the year. Inconsistency between rows is what triggers IRS computer mismatches.
What Code W on Form 8949 Means for You
If your 1099-DA has wash sale flags, or if you've chosen to apply §1091 voluntarily as a conservative measure, code W is the column (f) entry. The disallowed loss goes in column (g) as a positive number. The full reference for every Form 8949 adjustment letter — including W, B for basis corrections, T for term mismatches, and combinations like BW — is in the Form 8949 adjustment codes lookup. If you're reconciling against a CSV that doesn't carry the wash sale flag through, you can add it manually on the converted Form 8949 before the TXF generation step.
The same applies if you're starting from a 1099-DA reconciliation workflow — the converter lets the wash sale column from the 1099-DA win on each lot, and any rows where the broker flagged W keep that flag end-to-end.
Bitcoin, Ethereum, and the Specific Coin Questions
The questions at the long-tail end of search look like "bitcoin wash sale rule," "ethereum tax loss harvesting," "is selling and rebuying USDC a wash sale." For all of them, the answer in 2026 is the same: there is no §1091 wash sale rule for any digital asset, regardless of which coin or token, because crypto is property and §1091 applies to stock and securities. You can sell BTC at a loss and rebuy it the same hour. You can rotate a position from ETH to USDC and back. You can harvest a loss in a stablecoin pair (yes, even those have small price movements). None of those trigger §1091 disallowance.
The only way that changes is if Congress enacts an extension. As of April 2026, no such extension is law, and none is in any actively-moving piece of legislation.
FAQ
Does the wash sale rule apply to crypto in 2026?
No. IRC §1091 applies to "stock or security," and the IRS treats crypto as property under Notice 2014-21. As of the 2025 tax year being filed in 2026, no statute has extended the rule to digital assets. Brokers may still report wash sale flags on Form 1099-DA, but those flags don't reflect a current legal requirement.
If my 1099-DA has a wash sale flag on a crypto lot, do I have to honor it?
Strictly, no — the rule doesn't apply. But honoring what the form reports avoids a CP2000 mismatch with the IRS. Most filers choose to honor the broker's wash sale flag for crypto, lose the current-year deduction, and recover the basis on the replacement lot. The aggressive alternative is to report on the merits and attach a statement explaining the deviation.
What about NFTs — does the wash sale rule apply to them?
No, for the same reason. NFTs are property, not stock or securities, so §1091 does not reach them. The collectibles 28% capital gain rate may apply to some NFT sales (column (f) code C on Form 8949), but that's a separate question from wash sale treatment.
Can I sell and rebuy Bitcoin in the same day to harvest a loss?
Yes. There is no holding period or gap requirement under current law. The transaction has to be economically real — actual sale at market, actual repurchase — but you don't need to wait 30 days. Most practitioners suggest at least a few hours' gap to avoid the round trip looking like a sham, but that's a documentation suggestion, not a legal requirement.
What if Congress passes a crypto wash sale rule next year?
Effective dates in past proposals have ranged from "tax years beginning after enactment" to "after December 31, [year]." None of the proposals have included retroactive application. If a rule passes in 2026 with a 2027 effective date, your 2025 and 2026 disposals are unaffected — only trades you make from the effective date forward would fall under §1091 going forward.
Does my aggregator's "wash sale rule applied" toggle matter?
Yes, but only if you turn it on. Koinly, CoinTracker, and most other crypto tax tools default to "no wash sale rule" for tax year 2025 because that matches the law. If you toggle it on, the realized loss in their reports gets disallowed and shifted to the replacement lot's basis — which may not match what your 1099-DA shows, creating a reconciliation mismatch. Pick one position and apply it across every disposal.
Where in TurboTax do I enter crypto wash sale data?
TurboTax's crypto CSV importer is gone in 2026, so the import path is TXF. The TXF you generate from a CSV or 1099-DA already carries the wash sale codes (W, plus the crypto-specific 322/324 codes for short/long-term). When TurboTax Desktop reads the TXF, the wash sale rows appear on Form 8949 with the W code and the disallowed amount in column (g) automatically. No manual entry needed.
Bottom Line
The wash sale rule does not apply to crypto in 2026. You can harvest losses without the 30-day waiting period that stock investors face, you can rebuy the same coin minutes later, and your aggregator is right to default the rule off. But your broker may flag wash sales on the 1099-DA anyway out of an abundance of caution, and if that happens you'll usually want to honor the flag rather than fight it — the math difference is small and the IRS computer matches on the form data, not on your position about §1091's reach.
Track legislative proposals if you're an active trader. The wash sale extension has been one budget cycle away from passing for five years running, and when it lands, it will land effective for the next full tax year — without grandfathering existing positions in. Until then, harvest carefully, document each round trip, and if you're filing this year, the CSV to TXF converter preserves whatever wash sale flags came out of your aggregator end-to-end into TurboTax Desktop. If your basis is missing on top of the wash sale question, the 1099-DA converter handles both at once — reconcile the Unknown lots, honor the wash sale codes, and get a TXF that imports cleanly.
Filing crypto for tax year 2025? Convert your CSV to TXF — wash sale codes, term splits, and Form 8949 columns ride through unchanged into TurboTax Desktop. Or convert a 1099-DA PDF if your broker sent the form with Unknown basis on most lots.