Can I Claim a Tax Loss by Selling Cryptocurrency High and Rebuying at a Lower Price?

Thanks for the detailed answer! One follow-up question - does this strategy make sense even if I'm not planning to exit my crypto position entirely? Like, am I really gaining anything by doing this if I'm just going to hold long-term anyway? Also, is there any risk the IRS might change their stance on wash sales for crypto retroactively?

Whether this strategy makes sense depends on your overall tax situation. If you have other capital losses to offset these gains, or if you're in a lower tax bracket this year than you expect to be in future years, then realizing some gains now could be beneficial. Otherwise, if you truly plan to hold long-term and don't need the tax advantages now, there's an argument for simple buy-and-hold to defer taxes. As for retroactive rule changes, that's highly unlikely. While the IRS may eventually extend wash sale rules to cryptocurrency (there have been proposals), tax changes almost always apply moving forward, not retroactively. The principle of fair notice in tax law makes retroactive application of major rule changes quite rare, especially when they would negatively impact taxpayers who followed existing rules in good faith.

How does the site handle other DeFi transactions like staking rewards and liquidity pools? I've been using a regular tax software and it's a nightmare trying to categorize everything correctly. Does it connect directly to exchanges or do you have to upload CSV files?

I'm skeptical of any service claiming to figure out crypto taxes perfectly. Last year I used a "specialized" crypto tax service that completely messed up my cost basis and I ended up having to redo everything manually. Does this one actually understand the difference between transfers between your own wallets versus actual trades?

The platform handles staking rewards, liquidity pools, and most DeFi transactions pretty seamlessly. It connects directly to most major exchanges through API, but you can also upload CSV files for the ones it doesn't connect to directly. I was using three different exchanges plus a couple of wallets, and it pulled everything together correctly. Yes, it absolutely distinguishes between transfers and actual taxable events. That was actually one of my biggest problems before - my previous tax software kept treating wallet transfers as taxable events. This system correctly identified my transfers between personal wallets and excluded them from tax calculations. It also properly handled my cost basis across multiple purchases at different prices, which was a huge relief.

Wait, so this service just waits on hold with the IRS for you? How does that even work? I've literally waited on hold for 3+ hours before giving up. Does it actually reach a human or just automated systems?

This sounds like complete BS. The IRS barely answers their phones and when they do, the agents often give contradictory information. I seriously doubt any service can magically get you through faster than anyone else. What's their secret, paying IRS employees under the table?

It literally just waits in the phone queue for you. Instead of you personally sitting on hold for hours, their system handles that part. When an actual IRS agent picks up, you get a call letting you know an agent is on the line. It's simple but incredibly useful if you've ever wasted half a day on hold. No secret sauce or paying anyone off - they're just solving the hold time problem. The contradictory information issue is still valid - you should always document who you spoke with and what they told you. In my case, I asked specifically about cryptocurrency wash sales and got clear confirmation that they don't apply under current rules. The agent even referenced the relevant IRS guidance (Notice 2014-21) which treats crypto as property. Nothing magical about the service - it just saves you from the mind-numbing hold music.

That's really good to know, thank you! Do you happen to know when these potential changes might go into effect if they do pass something? And would it make sense to just do this strategy now while it's definitely still allowed?

Nothing is imminent as far as I know - these things typically take time to work through Congress, then the IRS has to issue guidance, etc. We'd likely have months if not a year or more of warning before any major change like applying wash sale rules to crypto. Definitely makes sense to use strategies that are currently allowed. Just keep good records of all your transactions with timestamps. If you're doing a lot of crypto trading, consider working with a tax professional who specializes in this area, as they'll be up-to-date on any pending changes and can help you navigate the transition if/when rules do change.

I did this exact strategy last year with ETH. Sold at $2850, rebought at $2400 a few days later. I just reported both transactions normally on Form 8949 - the sale as a capital gain and then the new purchase established my new cost basis. Nothing special needed documentation-wise beyond what you'd normally track (dates, amounts, proceeds, cost basis). No issues, no audit, no questions from the IRS. As long as you're accurately reporting the transactions, the timing between them isn't relevant for crypto (for now anyway).

Thanks, that's really helpful! Did you use any particular software to track your crypto transactions or did you just use spreadsheets? I'm trying to make sure I have everything properly documented in case I ever do get audited.