Bitcoin has experienced a significant decline of 30% from its peak this year, yet this downturn is serving a beneficial purpose by offering investors an opportunity to reduce their tax liabilities. Although the price drop appears unfavorable, it proves advantageous for those holding gains in other assets.
While the S&P 500 has surged approximately 18% so far this year and Bitcoin has fallen around 5%, many investors possessing both asset types are capitalizing on their cryptocurrency losses to offset profits made in equities.
Tom Geoghegan, head of Beacon Hill Private Wealth based in New Jersey, explained:
“Incorporating tax-loss harvesting within crypto as part of an overall tax strategy is becoming common practice—especially during years when equity markets perform strongly—rather than treating it as an isolated tactic.”
Rapid Crypto Sell-and-Repurchase Strategy Avoids IRS Restrictions
The concept behind tax-loss harvesting involves selling assets that have depreciated to realize losses which can then be used to lower your taxable income. This method allows you to offset capital gains dollar-for-dollar and if losses exceed gains, up to $3,000 can be deducted against ordinary income annually with any remaining loss carried forward.
For traditional stocks, the IRS enforces a wash-sale rule prohibiting repurchasing the same security within 31 days if you want your loss deduction preserved.
However, cryptocurrencies like Bitcoin are classified by the IRS as property rather than securities. Consequently, selling and immediately buying back crypto does not violate any wash-sale restrictions.
“You’re free to sell Bitcoin and repurchase it on the very same day without triggering any limitations imposed by wash-sale rules,” said Robert Persichitte—a CPA and financial advisor at Delagify Financial near Denver.
Cornell finance professor Will Cong noted that timing plays a crucial role this year: those who acquired Bitcoin near last autumn’s high point now face substantial unrealized losses due to roughly a 30% price drop since then. “This scenario typically leads newer investors into deep red territory which historically intensifies end-of-year selling pressure,” Cong told Bloomberg.
The End of 2025 Sees Increased Use of Strategic Crypto Tax Maneuvers
The absence of a mandatory waiting period after sales enables investors to execute quick sell-and-rebuy transactions seamlessly. According to Cong: “Without wash-sale constraints in crypto markets, executing harvest-and-repurchase trades instantly becomes feasible—concentrating activity close to critical tax deadlines.”
This behavior isn’t limited just to casual traders either. Geoghegan highlighted how clients are adopting more sophisticated approaches toward managing their Bitcoin holdings for tax benefits:
“Some clients promptly re-establish exposure after harvesting losses while others strategically apply these harvested losses against realized gains from equities or private investments,” he said. What was once purely about cryptocurrency now integrates into broader comprehensive taxation plans.
Looking ahead though presents challenges: Cong pointed out that prior typical market patterns such as January effects only emerged post-2018 following increased IRS scrutiny—and come 2026 new reporting requirements will further tighten oversight with brokers mandated via form 1099-DA to disclose crypto sale proceeds directly to authorities for first time ever.
This development raises stakes considerably according Persichitte: “Heightened volatility underscores why considering these strategies carefully matters even more now. if you can claim such losses with minimal restrictions or repercussions—it makes enduring those declines easier psychologically.”