What is wash sale rule?

A United States tax rule that disallows a loss when you buy back substantially identical property within 30 days of selling it.

It exists to stop a specific manoeuvre: sell a losing position on 31 December purely to book the deduction, buy it back on 2 January, and end the year with the same holding and a smaller tax bill. The rule denies the loss where the position was never genuinely given up.

The reason it comes up constantly in crypto is that the rule, as written, does not clearly reach digital assets, and a great deal of confident commentary treats that gap as either settled law or a loophole about to close.

How it works

The rule sits in section 1091 of the Internal Revenue Code and applies to "stock or securities". The window is 30 days before and 30 days after the sale, so 61 days in total counting the sale date, and it catches purchases by you and, in some circumstances, by a spouse or a controlled entity.

When it applies, the loss is not lost permanently. It is disallowed for the current year and added to the basis of the replacement position, which defers the deduction until that position is sold outside a wash window.

Cryptocurrency is generally treated as property rather than as stock or securities for United States federal tax purposes, following Internal Revenue Service Notice 2014-21. On the face of the statute, that places most digital assets outside section 1091. Bills extending the rule to digital assets have been introduced in Congress on several occasions and, as of September 2026, none has been enacted.

Two cautions belong with that. Tokens that are themselves securities are a different question. And the economic substance and related doctrines exist independently of section 1091, which is one reason professionals are cautious about aggressive same-day repurchasing.

Example

Illustrative, using stock to show the mechanism. You buy 100 shares at $50, sell at $30 for a $2,000 loss, and buy 100 shares back eight days later at $32.

The $2,000 loss is disallowed because the repurchase fell inside the window. It is added to the basis of the new shares, making it $5,200 rather than $3,200. Sell those shares later at $40 and your gain is $800 lower than it would otherwise have been. The deduction was postponed, not destroyed. Wait 31 days to repurchase and the loss is allowed in the year of sale, at the cost of being out of the position while you wait.

Why it matters when you buy

This shapes the timing of realizing losses rather than which asset to buy, and it interacts directly with how basis is tracked per account. Our tax pages cover holding periods and disposal treatment by jurisdiction, and the guide on crypto tax basics covers the framework.

Related terms

• tax loss harvesting: the practice the rule constrains
• cost basis: what a disallowed loss is added to
• capital gains: the calculation this affects
• taxable event: what triggers a gain or loss
• wallet by wallet accounting: how basis is tracked per account
• specific identification: choosing which lot you sold

Questions

Does the wash sale rule apply to Bitcoin?

As of September 2026, section 1091 by its terms covers stock and securities, and the Internal Revenue Service treats cryptocurrency as property. Proposals to extend it have not been enacted. Confirm the current position with a tax professional before relying on it.

What if the rule is extended later?

Legislation would apply from its stated effective date rather than retroactively in the normal case. That is a reason to follow the current law rather than to assume either outcome.

Does the United Kingdom have this rule?

Not by this name. It applies same-day and 30-day matching rules that achieve a comparable result for disposals, which our tax pages cover by jurisdiction.