Do I have to pay taxes if I just buy and hold bitcoin?

No, simply buying and holding bitcoin is not a taxable event. You only owe taxes when you sell, trade, spend, or otherwise dispose of your bitcoin. Holding bitcoin in your wallet without any transactions doesn't create tax liability. This means buying bitcoin with USD, holding it as its value changes, or transferring it between your own wallets are all non-taxable activities.

How do I calculate my bitcoin cost basis for tax loss harvesting?

Your cost basis is what you originally paid for bitcoin, including any fees. You can choose different methods to calculate gains and losses when you sell portions of your holdings. The most common methods are FIFO (First In, First Out), Specific Identification, and HIFO (Highest In, First Out). For example, if you bought 1 BTC at $90,000 plus $50 in fees, your cost basis would be $90,050. If you later sold it for $75,000 minus $25 in fees, your proceeds would be $74,975, creating a capital loss of $15,075.

Can bitcoin losses offset gains from stocks and other investments?

Yes, absolutely. Bitcoin losses can offset capital gains from any other investments, including stocks, bonds, real estate, and other cryptocurrencies. There's no limit on how much capital gains you can offset with capital losses. After offsetting gains, up to $3,000 of excess losses can reduce ordinary income annually, with remaining losses carrying forward indefinitely.

What's the difference between short-term and long-term bitcoin tax rates?

Short-term gains (held one year or less) are taxed as ordinary income (10%–37%). Long-term gains (held more than one year) receive preferential capital gains rates (0%, 15%, or 20%). For harvesting, short-term losses often provide the biggest benefit by offsetting higher-taxed short-term gains.

Does the wash sale rule apply to bitcoin like it does to stocks?

No. The wash sale rule currently does not apply to bitcoin. You can sell at a loss and immediately repurchase while claiming the full loss. Regulations may change, so stay current. Some tax pros suggest waiting a few days between sale and repurchase as a conservative approach.

Bitcoin tax loss harvesting

Turning unrealized bitcoin losses into tax savings; part of our comprehensive US Bitcoin Tax Guide.

The Problem

Bitcoin holders miss tax-saving opportunities during market downturns.

The Solution

Strategic tax loss harvesting turns bitcoin losses into immediate tax savings.

How bitcoin investors leave money on the table

Most bitcoin investors focus on price, not taxes. When the market dips, unrealized losses sit idle while gains elsewhere are fully taxed. The result is avoidable tax drag.

The hidden cost of holding:

Example: bought 1 BTC for $105k, now it's worth $85k
That's a $20,000 unrealized loss sitting in your wallet
Without action, you get zero tax benefit from that loss
Meanwhile, you're paying full tax on other capital gains

Most bitcoin investors:

Hold losing positions hoping for recovery
Don't realize losses can offset taxable gains
Miss the Dec 31st deadline for current-year savings
Pay thousands more in taxes than necessary

Cut taxes, keep exposure

What is bitcoin tax loss harvesting?

Sell at a loss → Claim the deduction → Repurchase

How it works:

Sell: Dispose of bitcoin showing unrealized losses
Claim: The loss offsets capital gains / reduces income
Repurchase: Buy back the same amount (if desired)

Why it's legal and effective:

No wash sale rules currently apply to bitcoin
Losses directly offset gains dollar-for-dollar
Excess losses carry forward to future years

The bitcoin advantage: no wash sale rules

Under current law, the wash-sale limitation in IRC §1091 applies only to "stock or securities."

The IRS classifies bitcoin as property - NOT a security.
Source: IRS Digital Assets Overview 2025

Estimate your savings with our Bitcoin Tax Calculator

Traditional Stocks	Bitcoin
30-day wash sale rule applies	No wash sale restrictions
Must wait to repurchase	Immediate repurchase allowed
Complex timing requirements	Simple, flexible timing
Risk missing price recovery	Maintain full market exposure

Note: there are legislative efforts to close this "loophole"

Calculate your savings

When tax loss harvesting makes sense

Loss harvesting shines when you have gains to offset, positions purchased above current price, or you’re rebalancing. It’s also a powerful year-end cleanup to avoid carrying unnecessary tax liability into next year.

Scenarios for loss harvesting:

You have bitcoin purchased above current market price
You realized capital gains from other investments this year
You want to rebalance without triggering unnecessary taxes
Year-end approaches and you need tax deductions

Rebalancing illustration for bitcoin tax loss harvesting

Example of tax loss harvesting

Here's a simplified example to show how a realized bitcoin loss can offset other taxable gains and reduce the net tax owed without giving up your long-term exposure.

The scenario:

Bought 0.5 BTC at $100,000 in March ($50,000 total)
Current bitcoin price: $80,000 ($40,000 current value)
Unrealized loss: $10,000

Tax benefit:

Harvest the $10,000 loss by selling, then rebuy immediately
Offset $10,000 in other capital gains
Save ~$2000 in taxes

Estimate your savings with our Bitcoin Tax Calculator

Step-by-step checklist

Phase 1 — Portfolio analysis

List lots + cost basis; compare to current price

Flag positions below cost

Estimate tax savings vs. gains; pick candidates

Phase 2 — Execute the harvest

Sell selected loss lots; save trade confirms/fees

Rebuy to keep exposure (if desired)

Capture details for reporting

Phase 3 — Tax reporting

Put each sale on Form 8949; totals to Schedule D

Offset gains first, then up to $3k ordinary income

Keep worksheets and lot IDs

Phase 4 — Ongoing strategy

Monitor drawdowns for more opportunities

Coordinate with overall investment/tax plan

Review at year-end

Tax loss harvesting strategies

Target the right lots, coordinate with other gains, and carry losses forward to compound tax savings.

Specific Identification (vs. FIFO)

Pick exact lots to sell; target highest-cost units
Often larger losses than FIFO
Requires precise records/software support

Coordinate with other investments

Use bitcoin losses to offset stock/other gains
Prioritize high-rate gains (short-term) when relevant
Time around vesting/liquidity events

Capital loss carryover to future tax years

Excess losses carry forward indefinitely
Offset future gains + $3k/yr ordinary income
Track remaining balance annually

Important considerations

Great strategies fail without proper documentation and compliance; track everything and watch for rule updates from the IRS.

Record-keeping

Dates, amounts, fair market value, fees per lot
Centralize exports/statements; use crypto tax software
Preserve audit trail

When to get help

Large balances, high trading volume, or Specific ID
Multi-asset/cross-border situations
Integrating with businesses/trusts

Regulatory watch

Possible extension of wash-sale rules to crypto
New broker reporting
(eg. 1099-DA)
State rules vary;
check our State Tax Guide

Loss harvesting as part of a broader bitcoin tax strategy

Tax loss harvesting is just one piece of a complete bitcoin tax strategy. Smart investors understand that minimizing taxes requires a comprehensive approach that goes beyond just harvesting losses.

Essential next steps:

Estimate your potential tax savings with our Bitcoin Tax Calculator
Understand how bitcoin income affects your overall tax situation
Learn the complete IRS reporting requirements for bitcoin
Explore state-specific bitcoin tax implications in your location

Start saving today

Don't let another tax season pass without optimizing your bitcoin tax strategy. With proper planning and execution, tax loss harvesting can save you thousands of dollars while keeping you fully compliant with IRS regulations.

Frequently asked questions

This guide is for educational purposes only. Bitcoin Well is not responsible for any tax liabilities, penalties, or interest charges resulting from your use of this information. The IRS has not reviewed or endorsed this content. We make no warranties about the accuracy, completeness, or reliability of the tax information provided. Always consult with a qualified CPA, enrolled agent, or tax attorney before making tax decisions.

This content does not constitute tax, legal, or financial advice. The information provided represents our understanding of current federal tax rules as they apply to bitcoin. Tax laws change frequently and vary by individual circumstances. State and local taxes may apply differently. Your specific situation may require different treatment than described here.