Tax Loss Harvesting in Crypto

Tax-loss harvesting is a legal investment strategy that helps reduce your overall capital gains for the financial year, and as a result, can reduce your taxes owed.

In crypto, this strategy is played out by investors who sell crypto assets they’ve held at a loss to lower the amount of capital gains accrued in the financial year.

This guide covers the fundamentals of tax-loss harvesting, a step-by-step process to get started, and explains the relevant rules and requirements for tax residents of the United States, Australia, Canada and United Kingdom.

How does tax loss harvesting work?

In some regions, disposing of crypto assets via a sell, swap, spend or loan constitutes a capital gains tax event.

If the value of your crypto asset at the time of disposal is higher than the cost basis, this will incur a capital gain. If the value of your crypto asset at the time of disposal is lower than the cost basis, this will incur a capital loss.

In regions that recognize capital losses within crypto activity, you can use this loss to offset your capital gains, thereby potentially reducing their tax bill.

Tax loss harvesting is legal, but wash trades may not be.

Wash trading is where you sell and then rebuy an asset to benefit from a tax event. Be aware of wash sale rules in your region and ensure you are not violating them, before you implement a tax loss harvesting strategy.

There may be a period of time in which you won’t be able to buy back the crypto asset you’ve sold AND be able to claim a capital loss on the initial purchase.

Digital assets are treated as property by most tax authorities – from the IRS to the ATO and HMRC – so the core approach to tax loss harvesting is universal, but local wash sale and anti‑avoidance rules can vary.

Super simple tax loss harvesting example

Bob buys 50 SOL for $5,000. SOL’s value goes up from $100 to $200. Seeing this increase, he decides to sell.

• Bob has now made a capital gain of $5,000.

In the same financial year, Bob buys 1 ETH at $4,300. The price declines, and he decides to sell it for $3,300 before the end of financial year.

• Bob has made a capital loss of $1,000.

Bob can use his capital loss of $1,000 to offset the capital gain of $5,000.

• Bob will now only pay CGT on the remaining $4,000.

What is a wash sale?

A wash sale happens when you sell a crypto asset at a loss and then repurchase the same (or a substantially identical) asset within a short time frame. The exact time varies depending on your local laws, but 30 days before or after the sale is often used.

The idea is that you’ve created a tax loss without genuinely changing your economic position.

Tax authorities introduce wash sale rules to prevent tax avoidance – they don’t want investors to claim losses for tax purposes while remaining exposed to the underlying asset. If your trade is flagged as a wash sale, the loss may be denied or deferred, depending on your country’s rules.

How wash sale rules apply to crypto

Here is the updated table with countries ordered as requested: United States, Australia, Canada, United Kingdom.

Example of a wash sale

You bought 1 ETH for AU$3,000. The price drops to AU$2,000, and you sell to realise a loss. If you buy the same ETH back two minutes later at AU$2,005, this may be a wash sale under Australian tax law – especially if your intent was solely to claim the AU$1,000 loss.

Step 1 – Choose your inventory method and cost basis rules

Before you analyse a single transaction, you need to decide how you’ll match buys to sells. This is known as your inventory method and will affect the cost basis of all of your assets. The inventory method you choose will have a big impact on the overall tax you owe for the year, as well as any potential savings you can make.

Before you make a decision, you need to check if your local tax authority requires you to use a default method, or if making your own selection is possible.

Default inventory methods

Inventory methods

If your tax authority allows you to choose your inventory method, these might be some of the options available to you.

• FIFO (First-In, First-Out): Oldest lots sold first; tends to minimize losses (or maximize gains) in a rising market.

• HIFO (Highest-In, First-Out): Highest-cost lots sold first; maximises losses in a falling market (favoured in the US).

• LIFO / Specific-ID / Average Cost: Other options that some countries permit or mandate.

Step 2 – Calculate your cost basis

The second step is the most important – and also the hardest.

You need to establish the cost basis for all the assets that you want to review and potentially sell.

To do this you will need to gather your entire cryptocurrency transaction history for every single cryptocurrency (whether or not you want to consider selling it) across every exchange, wallet and account you have ever owned.

If you miss any transactions or assets, its highly likely your cost basis calculations will be incorrect. This could cause you to sell the wrong assets – and incur a gain instead of a loss.

How do I calculate my cost basis manually?

If you don't want to use Crypto Tax Calculator to establish your cost basis, then you will need to download your transaction history from all of your exchange accounts and wallets and put them into a spreadsheet to analyse.

1. Download all of your crypto transaction history.
2. Match all of your purchases and disposals for each asset.
3. Based on your purchase and disposal history, calculate the cost basis of your current holdings. You may wind up with several different cost basis' (known as lots) for the same type of asset.
4. Create a final summary that includes each asset lot, the number of units, and the cost basis.

Step 3 – Identify unrealised losses

Using Crypto Tax Calculator

Free, Rookie and Hobbyist accounts

1. Review and categorize any transactions that require review. This necessary to ensure your cost basis is accurate.
2. Go to the Portfolio view, scroll down, and sort by "Unrealized Gain ($)".
3. Use this list to assess the potential tax impact of assets if you were to sell them, and realise the loss.

Investor and Pro accounts

1. Review and categorize any transactions that require review. This necessary to ensure your cost basis is accurate.
2. Go to the Reports page and click on the "View tax losses" button beneath the "Tax loss harvesting" section on the right-hand side.
3. Review the assets and potential savings. You can use the "Show assets without market price" to filter out things like receipt tokens from DeFi which might not provide any benefit (e.g., liquidity provider tokens).

Using a manual spreadsheet

1. Add live prices to your spreadsheet for each asset.
2. For each lot, calculate: current price × units – cost basis.
3. Filter for negative results and rank by dollar value.

Step 4 – Check wash sale and anti‑avoidance rules before you sell

Selling and rebuying the same asset can trigger a the wash sale rules like the superficial‑loss rule (CA), bed‑and‑breakfast rule (UK) or the ATO’s intent test (AU).

Ensure your tax loss harvesting strategy does not breach any relevant wash sale rules in your jurisdiction.

Step 5 – Dispose of your assets

A disposal triggers a capital gains tax event. Disposals typically include selling cryptocurrency, whether it be for fiat or other crypto.

DeFi transactions like staking, providing liquidity and bridging may also be counted as disposals, depending on your local tax laws.

When you're ready, dispose of your chosen assets to incur a loss. Remember, you need to do this in the same financial year that you want to claim the losses in.

Keep a record of the transactions for your tax records.

Step 6 – Record the loss

If your using crypto tax calculator, our software will recalculate your estimated tax owing once you've updated your accounts.

• Using API: Go to the Accounts page and click the sync icon next to the account you disposed of the crypto from.
• Using CSV: Download your transaction data from the account you disposed of the crypto from, and upload via the Accounts tab.

Once your accounts are updated, click on the orange or green circle in the topc right hand corner to recalcualte your tax.

Step 7 – Offset gains & carry forward

Finally, apply the losses to your overall capital gains.

Simply calcualte the net total of gains versus losses.

If you wind up with more losses than gains for the financial year, then you may be able to carry them forward to future tax years, or offset your income tax, depending on your local laws.

• USA: In the US, up to $3,000 of excess losses can offset ordinary income
• Australia: Excess losses can be carried forward to future tax years to offset future gains.
• Canada: Excess losses may be applied 3-years in the past, to recover previous tax on gains. Alternatively, they can be carried forward indenfitiely.
• United Kingdom: Excess losses can be carried forward to future tax years to offset future gains.

Wash sale rules and offset limits

Wash sale rules in Australia

• ATO wash‑sale warning: No statutory 30‑day rule, but the ATO can deny any loss if you repurchase quickly and intent appears solely tax‑motivated. Assistant Commissioner Tim Loh’s 2025 media comments highlight crypto as a focus.
• Forms & deadlines: Report in the Capital‑gains section of myTax by 31 Oct (or via your tax agent).
• Planning ahead: Combine a loss with a genuine portfolio rebalance – for instance, rotate from Coin A to a broader sector ETF – to demonstrate changed economic exposure.

Wash sale rules in the United States

• Wash sales: The classic wash‑sale rule in IRC §1091 doesn’t cover digital assets, so crypto sales can be bought back immediately.
• Offsetting: Net capital losses reduce capital gains first, then up to $3 000 of ordinary income; unused losses roll forward.

Wash sale rules in Canada

• Superficial‑loss rule: A loss is denied if you or an affiliated person buys the same (or identical) crypto within 30 days before/after the sale; the denied amount increases your adjusted cost base.
• Offsetting: Only 50 % of any net loss (allowable capital loss) applies against taxable capital gains.

Wash sale rules in the United Kingdom

• 30‑Day “Bed & Breakfast” rule: Shares (and cryptoassets) reacquired within 30 days are matched first, nullifying your loss. After 30 days, units go into the Section 104 pool.
• Carry‑forwards: Losses offset gains in‑year; un‑used losses carry forward indefinitely and can be “brought to account” in future self‑assessment returns.

Sources

• IRS, Digital Assets, 2025
• HMRC, Shares and Capital Gains Tax HS284, 2024
• ATO, Wash sales: the ATO is cleaning up dirty laundry
• CRA, Superficial loss rule 2024
• IRS, Instructions for Form 8949, 2024