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What is the wash sale rule for cryptocurrency?

SOLVEDby TurboTax28Updated March 31, 2022

Cryptocurrency is exempt from wash sale rules. The IRS classifies virtual currency as property. This means crypto follows the same rules as stocks and bonds—you pay tax if you sell, exchange, spend or convert crypto for more than it costs you, and deduct losses if you receive less than what you paid.

But unlike stocks and bonds, crypto is largely unregulated, so cryptocurrency isn't a “security”. Securities are regulated financial instruments with rules to protect investors. This means crypto has the same trading rules as precious metals including gold and silver or “real” currencies such as the British pound or Euro.

Cryptocurrency is volatile and prices change rapidly. Because you can ignore the wash sale rule, you can sell coins during market declines to reduce losses and then quickly buy back those coins as prices bottom out. You can apply those losses against other capital gains to lower their overall taxable profit. In years where these losses are substantial, they can be carried forward to offset future gains.

Cryptocurrency is taxed when you receive it as payment or have a transaction where you sell or trade it.

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