So, what is the wash sale rule? And does it apply to cryptocurrency?
Retirement Daily's Robert Powell caught up with Jeffrey Levine, CPA and tax pro from Buckingham Strategic Wealth Partners, to answer the question.
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Robert Powell: Does the wash sale apply to cryptocurrency? Well, here to talk taxes with us is Jeffrey Levine from Buckingham Wealth Partners. Jeffrey, what's up with wash sale rules and crypto?
Jeffrey Levine: Well, this is one of those areas where when Congress wrote the law, things were very different. When Congress wrote the wash sale rule, cryptocurrency did not exist. They didn't think about it. And so the wash sale rule says that it applies to securities or stocks. Well, cryptocurrency is considered property by the IRS and not a security. And the reason that matters is it doesn't fall under the existing wash sale rules.
Now, for those wondering what the heck is the wash sale anyway? The wash sale is the rule that says, if you have an investment that has lost money and you sell it, you can't buy it back within 30 days before or after that sale. Effectively, you've really got to get rid of the investment for 30 days in order to get the loss. Otherwise, the loss is disallowed and gets added to the basis of the new purchase you made. Well with cryptocurrencies, that's not true.
So imagine you bought cryptocurrency a few months ago when it was worth, let's say Bitcoin was worth $50,000, and then you had it at $40,000. Well, you could have sold it and had a capital loss and then turned around and bought right back. You didn't have to wait 30 days. You could have bought it back the next day and then maybe it kept going down to $30,000. Now it's close to $20,000. Well, every time it goes down, you're able to sell and effectively lock in that capital loss, which you can then use to offset other gains on other investments. Hopefully, at some point those investments will rebound. And what's different with cryptocurrency as opposed to stocks is you don't have to wait that 30 days. So I can sell that loser cryptocurrency investment today and I can buy it back tomorrow. So that if it does rebound, I'm in there for basically the full time to enjoy that ride up.
Editor's Note: The opinions expressed in this article are those of the authors. The content was reviewed for tax accuracy by a TurboTax CPA expert.
Zachary Faulds contributed to the writing of this article and produced the video and/or the graphics associated with it.
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