Crypto glossary
Wash sale rule
A wash sale rule disallows a tax loss when the same or a substantially identical asset is bought back shortly before or after the sale.
Wash sale rules prevent investors from selling an asset just to book a tax loss while keeping the same position. In the US, Section 1091 of the Internal Revenue Code disallows a loss on stock or securities if substantially identical ones are bought within 30 days before or after the sale; the disallowed loss is added to the basis of the new shares rather than lost permanently.
Because the IRS treats crypto as property, not as stock or securities, the US rule does not currently apply to most crypto, so investors have been able to sell bitcoin at a loss and buy it back minutes later. Bills to extend wash sale rules to digital assets have been introduced several times, so the position could change. Tokens that are themselves securities, or crypto ETFs, may fall under the rule.
Other countries have their own versions. Spain's IRPF law defers losses when homogeneous securities are repurchased within two months, or one year for unlisted ones, and whether this reaches crypto is debated. The UK applies a 30-day matching rule to crypto pools.
Example
A US investor sells shares of a spot bitcoin ETF at a loss and buys them back two weeks later, so the loss is disallowed. Selling and rebuying bitcoin itself in the same way is not caught by the current rule.