Important: The PARITY Act is a legislative discussion draft as of April 2026 and has not been enacted into law. The wash sale rule does not currently apply to cryptocurrency. This article explains what would change if the legislation passes.

The wash sale rule (IRC Section 1091) historically did not apply to cryptocurrency because the IRS classifies digital assets as property, not stock or securities. However, the proposed Digital Asset PARITY Act discussion draft, released by Reps. Miller (R-OH) and Horsford (D-NV), if enacted would extend wash sale rules to digital assets.[1][2] This means selling crypto at a loss and repurchasing within 30 days will trigger a disallowed loss, just like stocks.

What Is the Wash Sale Rule?

The wash sale rule prevents investors from claiming a tax deduction on a security sold at a loss if they purchase a "substantially identical" security within 30 days before or after the sale. This creates a 61-day window (30 days before, the sale date, and 30 days after) during which repurchasing triggers the rule.

When a wash sale occurs, the disallowed loss is not permanently gone. Instead, it gets added to the cost basis of the replacement purchase. According to IRS Publication 550, this effectively defers the loss until you eventually sell the replacement asset without triggering another wash sale.

For example, if you buy 1 BTC at $50,000, sell it at $40,000 (a $10,000 loss), and repurchase within 30 days at $42,000, the $10,000 loss is disallowed. Your new cost basis becomes $52,000 ($42,000 purchase price plus the $10,000 disallowed loss).

Why Crypto Was Historically Exempt

In Notice 2014-21, the IRS established that virtual currency is treated as property for federal tax purposes. Because IRC Section 1091 specifically references "stock or securities," cryptocurrency transactions fell outside the wash sale rule's scope.

This created a significant tax planning advantage. Crypto investors could sell at a loss and immediately repurchase the same asset, locking in a tax deduction while maintaining their market position. This strategy, sometimes called "tax loss harvesting on steroids," was entirely legal and widely practiced.

This exemption is estimated to cost the U.S. Treasury significant forgone tax revenue annually.[3]

The PARITY Act: What Would Change If Enacted

The Digital Asset Protection, Accountability, Regulation, Innovation, Taxation, and Yields (Digital Asset PARITY) Act discussion draft introduces several major changes for crypto taxation:[2]

Wash Sale Extension to Digital Assets

The most impactful provision would extend IRC Section 1091 to cover actively traded digital assets. If enacted, for taxable years beginning after the date of enactment, the same 30-day wash sale window that applies to stocks would apply to Bitcoin, Ethereum, and other actively traded cryptocurrencies. Selling at a loss and repurchasing within the window would result in a disallowed loss.[2]

The $200 De Minimis Stablecoin Exemption

The PARITY Act discussion draft includes a practical exemption: regulated payment stablecoin transactions with a per-transaction de minimis threshold of $200 would exclude gain or loss from gross income.[2] This addresses the real-world problem of triggering taxable events when using stablecoins like USDC or USDT for everyday purchases or conversions, where minimal gains accrue from slight price fluctuations.

Five-Year Deferral for Staking Rewards

Under current rules, staking rewards are taxable as ordinary income at the time of receipt (per Rev. Rul. 2023-14). The PARITY Act proposes allowing taxpayers to defer recognition of staking income for up to five years, or until the staked assets are sold, whichever comes first. This aligns the tax treatment more closely with the economic reality that stakers often cannot immediately access their rewards.

"Substantially Identical" Definition for Crypto

One of the most debated aspects is how "substantially identical" applies to digital assets. For stocks, a substantially identical security is well-defined: shares of the same company, options on the same stock, or highly correlated funds.

For crypto, the PARITY Act discussion draft would apply the existing substantially identical standard under Section 1091 to actively traded digital assets (e.g., BTC for BTC). However, selling BTC at a loss and purchasing ETH would not trigger a wash sale, as they are fundamentally different assets. This distinction matters for strategic tax planning.[2]

Wrapped tokens present a gray area. Selling ETH at a loss and purchasing WETH (Wrapped Ether) could be considered substantially identical since WETH is a 1:1 representation of ETH. The IRS has not issued final guidance on this edge case, but conservative tax practice would treat wrapped versions as substantially identical.

Tax Loss Harvesting Strategies That Still Work

Under current law, no wash sale restriction applies to crypto — so these strategies are available today. If the PARITY Act is enacted, several approaches would still remain legitimate:

Cross-Asset Harvesting

Since the wash sale rule only applies to substantially identical assets, you can sell one cryptocurrency at a loss and immediately purchase a different one. For example, selling SOL at a loss and purchasing AVAX does not trigger a wash sale, even though both are Layer 1 smart contract platforms.

31-Day Wait Strategy

The simplest compliant approach: sell at a loss and wait 31 days before repurchasing. The risk is price movement during the waiting period. If the asset rises significantly, the tax savings may be offset by paying a higher repurchase price.

Harvest While the Rule Does Not Apply

Because the wash sale rule currently does not apply to cryptocurrency under existing law, you can still buy and sell the same asset at a loss and immediately repurchase it without triggering a disallowed loss. This remains fully legal unless and until Congress passes legislation such as the PARITY Act.

According to CoinLedger's 2024 tax report, the average crypto investor had $5,300 in unrealized losses that could be harvested. For investors in the 24% tax bracket, harvesting before the rule change could save approximately $1,272 per year in federal taxes.

Lot-Specific Harvesting

Using Specific Identification (per Rev. Rul. 2019-24), you can selectively sell only the lots with the highest cost basis to maximize your loss. This is more surgical than selling your entire position and works well even under wash sale restrictions, as long as you do not repurchase within 30 days.

How dTax Detects and Tracks Wash Sales

dTax's open-source tax engine includes a 30-day window analysis feature that automatically scans your transaction history for potential wash sales. Here is how it works:

Automated Detection: For every sale at a loss, dTax checks for purchases of the same asset within the 30-day window (before and after). If a wash sale is detected, the disallowed loss is automatically added to the replacement lot's cost basis.

Wallet-Siloed Tracking: dTax tracks cost basis at the wallet level, ensuring that purchases on different exchanges are still caught by the wash sale scanner. A sale on Coinbase followed by a purchase on Kraken within 30 days is correctly flagged.

Form 8949 Compliance: When wash sales are detected, dTax automatically applies adjustment code "W" on Form 8949 and reports the correct adjusted basis, matching IRS requirements.

Pre-Audit Sandbox: Before filing, you can run dTax's pre-audit simulation to see exactly how wash sale adjustments affect your total tax liability, giving you the chance to review and correct any issues.

Legislative Status and Timeline

As of April 2026, the PARITY Act remains a discussion draft — it has not been voted on, passed either chamber of Congress, or signed into law. Key facts about the current legal landscape:

Current law (tax years 2025 and 2026): The wash sale rule does not apply to cryptocurrency. Tax loss harvesting with immediate repurchase is fully legal.
If the PARITY Act passes: The wash sale provisions would apply to transactions occurring on or after the date of enactment. Prior-year transactions cannot be retroactively recharacterized.
DeFi broker reporting: Congress repealed the DeFi broker rule on April 10, 2025 (H.J. Res. 25).[4] DeFi platforms are not required to issue 1099-DA forms.

How to Prepare

Even though the wash sale rule does not currently apply to crypto, proactive tax planning is worthwhile:

Harvest losses now while the exemption from wash sale rules remains in effect under current law.
Document your cost basis for all holdings with precise lot-level records.
Choose a cost basis method (FIFO or Specific ID) and apply it consistently going forward.
Monitor legislation — if the PARITY Act or similar bills advance, you will want software with wash sale detection ready to use.

dTax's free tier allows unlimited transaction import. The open-source wash sale detection engine scans your full history automatically. Pro ($49/year) unlocks Form 8949 export, PDF reports, and priority support — so you are ready if and when wash sale rules are extended to crypto.

FAQ

Does the wash sale rule currently apply to cryptocurrency?

No. As of April 2026, the wash sale rule (IRC Section 1091) does not apply to cryptocurrency. The IRS classifies digital assets as property, not stock or securities, so Section 1091 is not triggered by crypto transactions. The proposed PARITY Act would change this, but it has not been enacted.

What is the PARITY Act?

The Digital Asset PARITY Act is a bipartisan legislative discussion draft introduced by Reps. Max Miller (R-OH) and Steven Horsford (D-NV). It would extend wash sale rules to actively traded digital assets, create a $200 de minimis exemption for stablecoin transactions, and allow five-year deferral of staking income. As of April 2026, it is a draft — not enacted law.

Can I sell crypto at a loss and immediately repurchase it?

Yes, under current law. Because the wash sale rule does not apply to cryptocurrency, you can sell at a loss and repurchase the same asset immediately. The loss is still deductible. This distinguishes crypto from stocks, where you must wait 31 days before repurchasing without triggering a wash sale.

What happens to my disallowed loss if a wash sale does occur?

Under the wash sale rule as applied to stocks (and as would apply to crypto if the PARITY Act passes), the disallowed loss is not permanently lost. It is added to the cost basis of the replacement asset, effectively deferring the loss until you sell the replacement asset in a non-wash-sale transaction.