Wash Sales & Crypto: What You Need to Know Now and What’s Coming
For crypto investors, one major tax advantage has long been that the wash-sale rule under IRC § 1091 does not apply to digital assets like Bitcoin or Ethereum. But with new IRS reporting tools and repeated legislative proposals, that advantage may not last.
Current Law: Crypto Is Property, Not a Security
Under current U.S. tax law, cryptocurrencies are treated as property, not securities. The § 1091 wash-sale rule applies only to the sale and repurchase of stocks or securities, so crypto losses from “wash sale” style trades remain deductible today. Internal Revenue Bulletin: 2014-16, Notice 2014–21
The IRS’s own 1099-DA instructions make clear that the wash-sale box is limited in scope: it’s only for “digital assets that are also stock or securities for tax purposes.” IRS
This means that under current law (2025), you can, for example, sell a cryptocurrency at a loss and buy it back the next day and still deduct the loss, because the wash-sale regime does not apply.
Why the Form 1099-DA Includes a Wash-Sale Line
Form 1099 DA includes Box 1i, Wash sale loss disallowed, because the IRS designed the digital asset reporting regime to capture loss disallowances in the limited situations where a digital asset is treated as a stock or a security for tax purposes, and to accommodate possible future legislation that would extend wash sale treatment to digital assets.
The draft form and instructions expressly reference Box 1i and illustrate its use, including an example that reports a disallowed loss under section 1091 when the transaction meets the statutory definition of a wash sale. This preserves parity with long standing securities reporting and it prepares the information return framework in case Congress changes the law. Draft 1099-DA Instructions
Under current federal tax guidance, most cryptocurrency is treated as property, not as a security, which is why the statutory wash sale rule in section 1091 does not apply to ordinary coin and token trades. The IRS reaffirmed property treatment in Notice 2014 21 , in subsequent public guidance, and the 2024 final broker reporting regulations that did not alter that treatment. As a result, Box 1i does not change substantive law for typical crypto transactions. It exists to report disallowances where a digital asset is in fact a security for tax purposes, for example a tokenized equity instrument, and to align the form with any future expansion of section 1091.
The policy history explains why the IRS built this capability into the form. Congress has repeatedly considered extending wash sale rules to digital assets, beginning with the Build Back Better Act in 2021, which would have applied section 1091 to digital assets as well as to foreign currency and commodities. The Administration has continued to press for the change in successive Greenbooks, including Fiscal Year 2025, arguing that applying wash sale rules to digital assets would close a tax planning gap and improve horizontal equity.
By adding Box 1i now, the IRS ensures that brokers can report disallowed losses immediately if the law changes, without requiring another redesign of the information return. The presence of the box signals administrative readiness while leaving current law unchanged for ordinary cryptocurrency trades.
What Has Been Proposed (but Not Enacted)
In the FY 2025 Greenbook (Treasury’s budget proposal), the Administration calls for extending § 1091 wash-sale rules to digital assets, including related-party provisions and de minimis exceptions. U.S. Department of the Treasury
The Biden FY 2025 budget included a line, “Modernize various rules related to digital assets, including the application of ‘wash sale’ rules to digital assets and addressing related-party transactions ($42.0 billion over 10 years).” PwC
But as of today, no statute has been passed that imposes wash-sale treatment on crypto. The reconciliation of the “One Big Beautiful Bill” (OBBBA) do not show a change to § 1091 for digital assets.
So while proposals are strong and recurring, they remain just proposals and not law. For now…..
How 1099-DA Reporting Intersects with this Issue
Under the final Treasury/IRS broker-reporting rules, brokers must report gross proceeds for digital asset sales made on or after January 1, 2025 (via Form 1099-DA) IRS
But for 2025 transactions, acquisition dates, cost basis, and wash-sale adjustments are not required to be reported (unless voluntarily provided) Instructions for Form 1099-DA (2025)
In 2026 and beyond, brokers are required to report basis and additional fields for covered securities digital assets and voluntary reporting for noncovered ones.
Platforms like Fidelity confirm that for 2025, only “date of sale, quantity, and gross proceeds” will appear on the 1099-DA; cost basis and acquisition data will not yet be included in most cases. Fidelity Digital Assets
The IRS will begin receiving much more data on crypto dispositions, but it will not yet have full visibility on cost basis and wash sales for standard crypto from brokers in 2025.
What This Means for Crypto Investors (Today & Tomorrow)
Today (2025): You can still harvest losses in crypto without triggering § 1091 disallowance, because that rule doesn’t apply to property.
You must maintain excellent records (dates, costs, transfers) because 1099-DA will not always give you the full story.
Watch closely over the next few years: once rules are changed, the 1099-DA structure is already in place to enforce wash-sale treatment on tokenized securities or digital assets deemed securities.
If wash-sale treatment is extended, investors will lose the tax planning tool of repurchasing within 30 days after a loss.
Call to Action
The IRS is preparing to expand its oversight of cryptocurrency transactions. Investors should not wait for Congress to act before taking steps to protect themselves. Schedule an appointment with me today to review your digital asset activity, confirm your reporting aligns with current law, and prepare a strategy that will remain compliant when the rules eventually change.
