Crypto Tax Loss Harvesting USA: 2025 Guide

Tax season doesn't have to mean a bigger bill. If you've experienced losses in your cryptocurrency portfolio this year, you might be sitting on a valuable opportunity to reduce your tax liability.

Crypto tax-loss harvesting is a legitimate strategy that can help you offset gains and potentially save thousands of dollars on your tax return. Everyone wants to avoid losing money, but crypto markets are volatile. Smart investors use losses for tax benefits.

In this guide, we'll walk you through everything you need to know about crypto tax-loss harvesting, whether you're tax loss harvesting Bitcoin and other cryptocurrencies, or other investments like stocks. 

Key takeaways:

• Crypto tax-loss harvesting allows you to sell cryptocurrencies at a loss to offset capital gains and reduce your tax bill

• You can offset unlimited capital gains plus up to $3,000 of ordinary income each year

• The wash sale rule currently does not apply to cryptocurrency, unlike traditional securities

• Strategic timing throughout the year not just at year-end can maximize your tax savings

• Both short-term and long-term losses can be harvested, each with different tax implications

What is crypto tax loss harvesting?

Crypto tax-loss harvesting is a tax strategy where you intentionally sell cryptocurrencies that have declined in value to realize capital losses. These losses can then be used to offset capital gains from other investments, reducing your overall tax burden.

If you sell Bitcoin, Ethereum, or NFTs at a profit, the IRS treats that profit as a capital gain. You are required to pay taxes on that gain.

The IRS allows you to use these capital losses to cancel out your capital gains and offset some of your regular income. While you can't control whether your investments go up or down, you can control how you respond to losses in a tax-efficient way.

How tax loss harvesting crypto works

To understand the power of crypto tax-loss harvesting, let's look at a practical comparison.

Without tax loss harvesting

Meet Sarah. She's had a mixed year in the crypto markets:

• Sarah made a savvy trade and sold her Bitcoin for a $10,000 profit.

• However, she is also holding Ethereum that she bought for $8,000, which is now only worth $3,000. 

She is sitting on a $5,000 unrealized loss, but she hasn't sold it yet.

If Sarah does nothing, she owes taxes on the full $10,000 Bitcoin profit. At a short-term capital gains rate of roughly 30%, she writes a check to the IRS for $3,000.

With tax loss harvesting

Now, let’s say Sarah decides to harvest her losses before December 31st.

She sells her Ethereum, "harvesting" that $5,000 loss.

• Total Gains: $10,000 from Bitcoin

• Total Losses: -$5,000 from Ethereum

• Net Capital Gain: $5,000

Instead of being taxed on $10,000, Sarah is only taxed on $5,000. Her tax bill drops from $3,000 down to $1,500. By clicking a few buttons, she saved herself $1,500.

Read next: How to calculate crypto tax in U.S. 

How to execute crypto tax-loss harvesting?

Executing a tax-loss harvesting strategy involves several straightforward steps:

Step 1: Review your portfolio: Review and identify assets that are below your purchase price.

Step 2: Sell or Trade: Sell the asset to realize the loss. You can sell it for USD, or trade it for another cryptocurrency like BTC to tax loss harvest.

Step 3: Re-invest (Optional): If you still believe in that cryptocurrency, you can take the cash from the sale and buy the same crypto or different asset.

Step 4: Document everything: Keep the records of your transactions. You'll need this information when filing your tax return to properly report your capital losses.

Ready to stop wrestling with spreadsheets? Start automated per-wallet tracking with Blockstats and get your first report free, see exactly what you'd file before you pay a cent. 

When should you tax loss harvest cryptocurrency?

Timing is crucial when it comes to maximizing your tax-loss harvesting strategy.

Many investors make the mistake of waiting until December to think about tax-loss harvesting. This end-of-year scramble can cause you to miss valuable opportunities throughout the year.

The cryptocurrency market is known for its extreme volatility. Prices can swing dramatically within days or even hours. This volatility creates multiple windows throughout the year where strategic tax-loss harvesting makes sense.

Review your portfolio quarterly or even monthly during volatile periods. When you notice significant unrealized losses, that's your opportunity to harvest them. By spreading your tax-loss harvesting throughout the year, you can take advantage of temporary price dips without the stress of year-end deadline pressure.

Harvest losses when you have realized gains. If you sold Bitcoin at a profit in March, immediately look for other holdings trading at a loss that you can sell to offset that gain.

What are the benefits of crypto tax loss harvesting?

The advantages of crypto tax-loss harvesting extend beyond simple tax savings:

• Immediate tax reduction: The most obvious benefit is lowering your tax bill for the current year. Every dollar of harvested loss offsets a dollar of capital gains.

• Income offset: Beyond offsetting gains, you can use up to $3,000 of net capital losses to reduce your ordinary income each year. This is particularly valuable if you're in a high tax bracket.

• Flexibility across asset classes: Crypto losses can offset gains from stocks, real estate, and other capital assets, giving you broad flexibility in your overall tax strategy.

• Loss carryforward: Any losses exceeding the annual limits don't disappear. They carry forward to future tax years, providing ongoing tax benefits.

• Portfolio rebalancing: Tax-loss harvesting gives you a reason to review and potentially rebalance your portfolio, which is a healthy investment practice.

What are the risks of crypto tax-loss harvesting?

While tax-loss harvesting offers significant benefits, it's not right for every situation. Here are some scenarios where you should proceed with caution:

• Planning to exit crypto entirely: If you're selling your holdings permanently in the near term anyway, harvesting losses may not provide additional benefit. Consider your overall investment timeline before making moves solely for tax purposes.

• Transaction costs eat into savings: If the tax savings are smaller than the gas fees or exchange fees required to make the trades, it’s not worth it.

• Your income is already low: If in the 0% long-term capital gains bracket (e.g., single under $47,025 in 2025), long-term loss harvesting has minimal benefit, though it can still offset short-term gains.

• Market timing risk: If you sell to harvest losses and don't immediately repurchase, you risk missing out on potential price rebounds. 

Check out the free crypto tax calculator → 

Is there any limit to crypto tax loss harvesting?

There is no limit on matching gains. If you have $1 million in capital gains and $1 million in capital losses, you can offset the entire amount and pay $0 in capital gains tax.

However, if you have net losses, you can only deduct $3,000 against your other income types for the year. Also, you can carry forward indefinitely.

Does wash sale rules apply to crypto?

The IRS wash sale rule, which bars loss deductions if a security is sold and repurchased within 30 days, applies only to securities, not property. 

Since the IRS classifies cryptocurrencies as property, the wash sale rule doesn't apply to crypto assets. This means crypto investors can sell at a loss to harvest a tax benefit and immediately buy back the asset. Although lawmakers have proposed extending the wash sale rule to crypto, for now, no wash sale rule applies to crypto.

Who can benefit from crypto tax loss harvesting?

Crypto tax-loss harvesting isn't just for wealthy investors, it can benefit a wide range of people:

You should consider this strategy if:

• You have realized capital gains this year from stocks or crypto.

• You have a high income and want to utilize the $3,000 deduction.

• You are holding "bags" of coins that are down significantly from their all-time highs.

Can I tax loss harvest NFTs?

Yes, you can absolutely apply tax-loss harvesting strategies to NFTs. The IRS treats NFTs similarly to other cryptocurrency assets, they're considered property for tax purposes. When you sell an NFT for less than you paid for it, you realize a capital loss that can offset other capital gains.

The same wash sale rule exception applies here. Unlike with stocks, you could theoretically sell an NFT at a loss and immediately repurchase it.

Can I tax-loss harvest Bitcoin?

Bitcoin is one of the most common cryptocurrencies used for tax-loss harvesting, simply because so many investors hold it.

The process works the same as with any other cryptocurrency. If you purchased Bitcoin at a higher price than it's currently trading, you can sell it to realize the loss and reduce your tax liability.

If you've purchased Bitcoin multiple times at different prices, you can choose which specific purchases (or "tax lots") to sell. This is called specific identification, and it allows you to maximize your tax-loss harvesting by selling the highest-cost Bitcoin first.

Can you deduct crypto losses from taxes?

Cryptocurrency losses are tax-deductible, but only when sold.

These capital losses can offset capital gains from any asset, like crypto, stocks, etc. If losses exceed gains, you can deduct up to $3,000 against ordinary income. Any remaining losses carry forward indefinitely.

Unrealized losses are not deductible. Losses from theft or exchange collapse follow different, often stricter, rules.

What's the deadline for crypto tax loss harvesting?

The tax year in the United States generally runs from January 1 to December 31.

To claim a loss for the 2025 tax year, the trade must be executed by December 31, 2025. You cannot retroactively harvest losses in April when you are filing your paperwork.

How do I get started with tax loss harvesting crypto?

Getting started with crypto tax-loss harvesting is straightforward, but proper tracking is essential for maximizing your tax savings.

The challenge most crypto investors face is visibility. If you're using multiple exchanges and wallets, manually tracking which assets are trading at a loss becomes incredibly time-consuming. You need to know not just the current price, but your specific cost basis for each holding, and that's where things get complicated.

This is where a comprehensive crypto tax calculator like Blockstats becomes invaluable. Instead of building spreadsheets and manually calculating each position, you can automate the entire process.

Calculate your taxes with Blockstats → 

Optimize your crypto tax loss with Blockstats

You don’t need to do the math yourself. Blockstats automates the entire process for you.

Instead of digging through transactions, Blockstats aggregates all your wallets and exchanges into one dashboard.

1. Sync your data: Connect your exchanges and public wallet addresses securely.

2. View your opportunities: Blockstats automatically identifies which assets are trading at a loss compared to your purchase price.

3. Harvest with confidence: The dashboard shows you exactly how much you can save by harvesting specific assets.

Blockstats generates the necessary IRS tax forms. Stop leaving money on the table and let the software handle the heavy lifting.

Frequently asked questions

Is tax loss harvesting crypto a form of tax evasion?

No, crypto tax-loss harvesting is completely legal and is considered tax avoidance, not tax evasion. As long as you report your sales, gains, and losses accurately, and comply with filing requirements, you are using a legitimate tax-minimization method, it's not an evasion.

Can I offset my crypto capital losses against gains from other assets like stocks?

Yes. Realized crypto losses count as capital losses. That means they can be used to offset capital gains from other assets, such as stocks, bonds, or real estate. If losses exceed gains, up to $3,000 can be used to reduce ordinary income.

How can I claim losses back on crypto?

You claim them by filing Form 8949 and Schedule D with your annual tax return. You don't get a check back from the government immediately; rather, you pay less tax when you file.

When should I sell crypto for tax loss harvesting?

You must sell before the market closes on December 31st. However, keep an eye on the market throughout the year. The best time to harvest is often during a deep market correction.