Timing tax loss harvesting for crypto - best strategy with underwater coins

Wait - I thought the wash sale rule doesn't apply to crypto since it's considered property not a security? Has something changed?

You're right that currently there's a gray area. The IRS hasn't explicitly stated that wash sale rules apply to cryptocurrency since they classify crypto as property rather than securities. Many tax professionals take a conservative approach and recommend following the 30-day rule anyway, especially since there's been talk of closing this loophole in proposed legislation. It's possible to take the position that wash sales don't apply to crypto, but this comes with some risk if regulations change retroactively. If you're considering immediately rebuying the same coin after selling for a loss, consult with a tax professional about your specific situation and risk tolerance.

How does it work with tracking the cost basis across different exchanges? I've got coins on Coinbase, Binance, and a hardware wallet and it's been a nightmare trying to keep track.

Sounds like an ad. Does it actually connect to exchanges and import transactions or do you have to manually enter everything?

It integrates directly with most major exchanges through their APIs, so you don't have to manually input your transactions. I connected my Coinbase, Kraken, and Gemini accounts, and it pulled everything automatically including my cost basis calculations. As for manual wallets, you can import public addresses and it will trace the blockchain transactions, though you might need to provide some additional information for complete accuracy. It was definitely easier than the spreadsheet method I tried before.

How much does it cost? The IRS phone system is absolutely maddening but I'm hesitant to pay for something I should be able to get for free.

This sounds too good to be true honestly. The IRS is impossible to reach. I've tried calling dozens of times this filing season. Why would this service work when nothing else does?

They charge a fee only if they successfully connect you - I don't remember the exact amount but it was reasonable considering I'd already wasted hours trying to get through myself. Think of it as paying for the time you save not sitting on hold. The reason it works is that they use a combination of technology and actual humans who continuously dial in to the IRS system and navigate the phone tree for you. Once they reach a human agent, they connect you. It's basically what you'd do yourself if you had unlimited time and patience. They just do the frustrating part for you.

Do you know if there are specific forms we need to use for reporting crypto specifically? Or is it just the normal capital gains reporting forms?

For cryptocurrency transactions, you'll use the same forms as other capital assets - primarily Form 8949 (Sales and Other Dispositions of Capital Assets) and Schedule D (Capital Gains and Losses). There's no special crypto-specific form. On Form 8949, you'll need to list each transaction separately with description, date acquired, date sold, proceeds, cost basis, and gain/loss. Then the totals carry over to Schedule D. Make sure to check the correct box at the top of Form 8949 depending on whether the exchange provided you with a 1099-B and whether the basis was reported to the IRS.

I had a $15k loss in 2023 and carried it forward. You'll use Schedule D and it will calculate how much you can use in the current year (up to $3k against ordinary income if you have no capital gains to offset). The remaining amount carries forward automatically and you'll need to keep track of it for future years. Your tax software should handle the calculations, but keep your previous returns handy since you'll need to know how much loss you're carrying forward each year. Mine took about 5 tax years to fully utilize.