My understanding is the wash sale rule does not apply to cryptocurrency, but something called the straddle rule may, and the latter seems very confusing. How do places like bitcoin.tax and TurboTax handle transactions for a loss?
E.g. if I have hundreds of transactions and some are for a gain and some are for a loss, are the losses still valid?
I suppose you could try to avoid this entirely by trying to pair sale transactions with open positions that would not result in it being a "loss".
The wash sale rules under Section 1091 apply only to “shares of stock or securities.” Therefore, they do not apply to bitcoins unless bitcoins (and virtual currencies in general) qualify as “shares of stock or securities.”
This qualification would seem highly unlikely. There’s just really no argument that bitcoins are “shares of stock or securities.” The definition for these terms (taken from Section 1236, for example) is “any share of stock in any corporation, certificate of stock or interest in any corporation, note, bond, debenture, or evidence of indebtedness, or any evidence of an interest in or right to subscribe to or purchase any of the foregoing.” Bitcoins would not appear to meet this definition.
Section 1091 Wash Sale Rule | Does It Apply to Bitcoin? (bitcointaxsolutions.com)
The wash sale rules for cryptocurrency should be the same as other types of transactions.
Transactions for a loss or sorted as either long term or short term. Long term is for transactions held longer than one year whereas short term is for transactions held one year or less.
If the losses are realized, they would be valid. Transactions are realized when they are sold.
To report wash sales in TurboTax Online, click the box for I have more info to enter that I don't see here. to include any wash sales reported.
If you are mining cryptocurrency, then the transactions should be reported similarly to day trading, which would be reported as self-employment on Schedule C.
For more details about cryptocurrency, see:
How do I report Bitcoin or other cryptocurrency as a capital gain?
I looked at the IRS FAQ and could not find any mention of "wash sales". I did find this though: "When you sell virtual currency, you must recognize any capital gain or loss on the sale, subject to any limitations on the deductibility of capital losses". It links to Publication 544.
However, I could not find anything in this publication about wash sales, or more information related to this comment.
There is a section 1091 called "Loss from wash sales of stock or securities" which suggests the wash sale rule is specific to stock and securities, not cryptocurrency (which is treated as property). I've also seen some comments on other websites saying that the wash sale rule does not apply to cryptocurrency.
So this leads me to think the wash sale rule does not apply. However, I am hoping to get confirmation.
The wash sale rules under Section 1091 apply only to “shares of stock or securities.” Therefore, they do not apply to bitcoins unless bitcoins (and virtual currencies in general) qualify as “shares of stock or securities.”
This qualification would seem highly unlikely. There’s just really no argument that bitcoins are “shares of stock or securities.” The definition for these terms (taken from Section 1236, for example) is “any share of stock in any corporation, certificate of stock or interest in any corporation, note, bond, debenture, or evidence of indebtedness, or any evidence of an interest in or right to subscribe to or purchase any of the foregoing.” Bitcoins would not appear to meet this definition.
Section 1091 Wash Sale Rule | Does It Apply to Bitcoin? (bitcointaxsolutions.com)