Autumn is a Time for Harvesting: Digital Asset Tax Loss Harvesting That Is!
As the year-end quickly approaches, strategic tax planning opportunities are ripe for consideration. But you need to move quickly before it’s too late!
One such opportunity involves harvesting unrealized tax losses from your digital currency portfolio. Like tax loss harvesting in general, this strategy consists of identifying your loss positions and offsetting those losses with investments in a gain position.
What makes digital asset loss harvesting unique is under current law, the “wash sale” rules don’t apply. For stock or securities, the wash sale rules prevent taxpayers from claiming a loss on the sale or other disposition of a stock or security if, within the 61-day period that begins 30 days before the sale, they acquire the same or substantially identical stock or securities.
The IRS currently considers digital assets to be “property” rather than “securities.” That means that for 2023’s current year-end planning, you can identify those digital assets currently in a loss position, sell them to offset capital gains, and then repurchase the digital asset position.
But this strategic gem may soon vanish. As of this writing, President Biden’s proposed 2024 Budget Bill contains a provision which would apply the wash sale rules to digital assets beginning with the 2024 calendar year. If this sounds familiar, that is because the House-passed version of the Build Back Better Act of 2021 contained a similar provision. That legislation died, however, when Senator Joe Manchin refused to support it.
So, here we are at what could be a final opportunity to turn the crypto winter of losses into a bountiful harvest of opportunity. This idea is definitely worth reviewing.