The wash-sale rule in 26 U.S. Code section 1091 has been on the statute books since 1921. It disallows the deduction of a loss on a sale of stock or securities if the same taxpayer acquires "substantially identical" stock or securities within a 30-day window before or after the sale. The disallowed loss is added to the cost basis of the replacement security, deferring the deduction until the replacement is itself sold.
The rule applies to "stock or securities". The IRS has consistently held, since Notice 2014-21, that convertible virtual currency is property, not a security. As a matter of statute, that means section 1091 does not currently apply to bitcoin, ether or any other crypto. The Joint Committee on Taxation flagged this gap in JCX-2-22, estimating the revenue cost to the federal government as small but non-trivial.
Three legislative proposals have tried to close the gap. Reviewing what each one actually says is the cleanest way to understand what the next version is likely to look like.
The three proposals on the table
Build Back Better Act (2021). The version that passed the House in November 2021 included an amendment to section 1091 extending it to "digital assets". The bill died in the Senate. The text is preserved on Congress.gov. Notable feature: the proposed effective date was for tax years beginning after 31 December 2021, with no grandfathering of existing positions.
Lummis-Gillibrand Responsible Financial Innovation Act (2022, reintroduced 2023). A bipartisan Senate proposal that took a different approach: rather than extending section 1091 wholesale, it created a digital-asset-specific anti-abuse rule with a shorter window (the original proposal floated 14 days rather than 30) and an explicit carve-out for de minimis amounts. The original text is here; the 2023 reintroduction is linked here. Neither version reached a floor vote.
Treasury Greenbook (2024 and 2025 editions). Each year the Treasury publishes its General Explanations of the Administration’s Revenue Proposals (the "Greenbook"). Both the FY2025 Greenbook and the FY2026 Greenbook include a proposal to extend the wash-sale rule to digital assets. The Greenbook is not legislation; it is the executive’s wish list. But it tells you what the Treasury is asking Congress for, and the proposal has been included two years running, which suggests the administration is not letting it drop.
What the affected mechanic looks like for retail investors
Today, a retail investor with a 1 BTC position bought at $90,000 and now worth $70,000 can do the following on 28 December: sell the 1 BTC, immediately buy 1 BTC at the same price, and deduct the $20,000 loss against other capital gains for the year. The economic position is unchanged; the tax position is materially better. This is the harvest mechanic described in our December crypto harvest checklist.
If section 1091 were extended to digital assets in its current form, the same trade on 28 December would have the loss disallowed (because the same taxpayer acquired substantially identical property within the 30-day window on either side of the sale). The $20,000 loss would be added to the cost basis of the replacement BTC. The economic position would still be unchanged, but the tax benefit would be deferred to whenever the replacement BTC was eventually sold without a wash, which could be never.
What changes for the investor is not "no benefit" but "delayed benefit". For an investor who holds long term anyway, the practical impact is small. For an investor who actively realises losses each December to offset gains realised earlier in the year, the rule would meaningfully change the calculus.
The "substantially identical" question
The most under-discussed aspect of any wash-sale extension to crypto is what "substantially identical" actually means. The case law for stocks is straightforward: common stock of the same issuer is substantially identical; preferred stock is not, unless it is convertible into common stock at a fixed ratio.
For crypto, the question is genuinely open. Three sub-questions are unresolved in every proposal so far:
- Is BTC the substantially identical property to wBTC (a tokenised wrapped version on Ethereum)? They have the same economic exposure but different smart-contract issuers and different wrap/unwrap risks.
- Is staked ETH substantially identical to spot ETH? Liquid staking tokens like stETH and rETH trade at small but persistent discounts to spot.
- Are different versions of a forked chain substantially identical? After the Ethereum / Ethereum Classic split in 2016, the two chains had different consensus rules but the same pre-fork history.
The Lummis-Gillibrand bill attempted to address this by carving out tokens with "materially different" characteristics, but did not define the test. In the absence of statutory clarity, the safe assumption is that any wash-sale extension would initially treat each protocol token as a distinct property, with derivatives and wrapped versions as a grey area resolved case by case.
Positioning before the rule changes
Three takeaways from the audit above:
- The 2026 tax year is almost certainly still open. No bill containing a wash-sale extension is currently in advanced markup; the legislative calendar makes a 2027 effective date the earliest realistic outcome of any new bill introduced this year.
- Effective dates so far have not been retroactive. Every proposal so far has applied to tax years beginning after enactment. An investor harvesting losses in December 2026 is operating under the current rules, even if a bill is signed in early 2027.
- The mechanic to plan for is the wrap. When the rule does change, the cleanest way to harvest a loss without triggering a wash will likely be to swap into a different but economically similar asset for 31 days. Selling BTC and buying ETH for a month does not violate any current or proposed rule. The cost is the divergence risk during that month, which is non-trivial in crypto.
The SafeFinance Tax-Loss Harvesting tool currently flags wash-sale risk for US investors as advisory only, on the basis that the rule does not apply. If and when the rule is extended, that advisory will become a hard block on disposals that would re-acquire within the window. We will publish an update on this site within seven days of any bill containing the extension being signed into law.