Crypto Tax-Loss Harvesting: Turn 2025 Losses into Big Tax Wins

Picture this: you bought Bitcoin at $110,000, Ethereum at $4,800, maybe threw some money at Solana when everyone was screaming “moon.” Fast forward to today and everything is down hard. Your portfolio looks like a sea of red, your group chats are dead silent, and you’re wondering if you’ll ever see those gains again.

I’ve been there. More than once, actually. And here’s the weird part – right now, in December 2025, this blood in the streets might actually be the best thing that’s happened to your tax situation all year.

The Hidden Silver Lining in Crypto’s Brutal 2025 Dip

While everyone else is panicking or diamond-handing their way through the pain, smart investors are quietly doing something that feels completely backwards: they’re selling their losing positions on purpose.

Not because they don’t believe in crypto anymore. Not because they’re trying to time the bottom. But because there’s a perfectly legal tax strategy that lets you turn paper losses into real, spendable cash – by reducing your tax bill today and giving you ammunition for future gains.

It’s called tax-loss harvesting, and right now crypto investors have a massive advantage that stock investors can only dream about.

First, Let’s Talk About How Normal Tax-Loss Harvesting Works

Here’s the basic idea, and trust me, it’s simpler than it sounds.

When you sell an investment for less than you paid, you’ve “realized” a capital loss. The IRS actually lets you use that loss to cancel out capital gains from other investments. Made $20,000 selling a rental property this year? If you have $20,000 in realized crypto losses, poof – that gain disappears for tax purposes.

Even better, if your total losses exceed your gains, you can use up to $3,000 of those losses to offset your regular income – the money from your job, your side hustle, whatever. And anything left over? It rolls forward indefinitely into future years forever.

“Think of it like finding money you didn’t know you had. You’re just moving tax savings from the future into your pocket right now.”

I’ve seen clients cut their tax bills by five figures in a single year doing this properly. One guy I worked with had $87,000 in unrealized crypto losses – he harvested $40,000 this year, wiped out his stock gains completely, and banked the rest for when he eventually sells his rental property. Felt like finding free money.

The Crypto Superpower: No Wash-Sale Rule (For Now)

Here’s where things get really interesting – and this is the part that makes crypto special.

If you sell Apple stock at a loss and buy it back tomorrow, the IRS says “nice try” and disallows your loss. That’s the infamous wash-sale rule. It applies to stocks, ETFs, options – pretty much every security.

But cryptocurrency? The IRS currently treats it as property, not a security. Which means…

There is no wash-sale rule for crypto.

You can sell your Bitcoin at $93,000 for a $17,000 loss this afternoon, then buy it back at $93,100 five minutes later, and your $17,000 loss is 100% valid for tax purposes.

Let that sink in.

You lock in the tax benefit immediately, keep exactly the same economic position, and now you have a lower cost basis going forward. It’s like hitting the reset button on your taxes while keeping your investment thesis intact.

• Sell 0.5 BTC at current prices → realize $12,000 loss
• Immediately buy 0.5 BTC back → same exposure
• Use that $12,000 loss to offset gains or income
• Now your cost basis is today’s lower price
• Future gains will be calculated from this new, lower basis

It’s almost too good to be true. Which is exactly why many of us in the tax world think this advantage won’t last forever.

Why This Crypto Tax Loophole Probably Won’t Last Forever

Look, I’m just being honest here – the writing this in December 2025, I’d be shocked if this advantage survives past 2027.

Congress has been eyeing crypto tax treatment for years. The Biden administration tried to close this exact loophole in their 2024 budget proposal. Every major tax reform package for the past three years has included language about treating crypto like securities for wash-sale purposes.

In my opinion? This is probably one of the last years we’ll have this opportunity in its current form.

“If something seems too good to be true in the tax code, it usually means lawmakers haven’t noticed it yet.”

– Every tax professional ever

Some conservative CPAs are already telling clients to wait 31 days before repurchasing, just in case. Others are more aggressive. Personally? I think if you’re comfortable with the current IRS guidance, this is a legitimate strategy. But you need to understand the risks.

Real-World Example: How I Helped a Client Save $28,400 in Taxes

Last week I worked with Sarah (name changed), a 34-year-old software engineer who got into crypto in 2021.

Her situation:

• $180,000 unrealized crypto losses
• $95,000 in realized stock gains this year
• $220,000 W-2 income (37% marginal bracket)
• Wanted to keep all her crypto positions long-term

We harvested $95,000 in losses (sold and immediately repurchased her positions), which completely wiped out her stock gains. Then we used another $3,000 to offset ordinary income.

Result? She saved approximately $28,400 in federal taxes while maintaining identical crypto exposure. The remaining $82,000 in losses now sits in her “tax loss bank” for future years.

She literally turned market pain into a massive tax refund. And she’s positioned herself perfectly for the next bull run.

The Step-by-Step Playbook for December 2025

You have until December 31st to realize losses for 2025. Here’s exactly what you should be doing right now:

1. Inventory your portfolio – Calculate unrealized gains and losses for every position
2. Identify your tax situation – Do you have capital gains this year? High W-2 income?
3. Prioritize short-term losses – These offset short-term gains taxed at ordinary rates (up to 37%)
4. Consider your future plans – Harvest extra losses if you expect big gains soon (RSUs vesting, property sale, etc.)
5. Execute before December 31 – Trades need to settle by year-end
6. Document everything – Keep records of cost basis, sale prices, repurchase prices

Pro tip: Many exchanges now have built-in tax-loss harvesting tools that will identify your biggest losers and execute these trades automatically. Worth checking if yours offers this.

Common Mistakes That Can Cost You Thousands

I’ve seen all of these, and they hurt:

• Forgetting about crypto-to-crypto trades – Yes, swapping ETH for SOL triggers a taxable event
• Missing the $3,000 ordinary income offset – This is basically free money
• Harvesting losses but not tracking new cost basis properly
• Waiting until December 30th – Settlement delays can push you into 2026
• Harvesting in tax-advantaged accounts – Losses in IRAs/401ks are worthless for this strategy

The last one is huge. You can only harvest losses in taxable accounts. Your Roth IRA losses? Sorry, those stay trapped forever.

What Happens When the Bull Market Returns?

This is perhaps the most beautiful part.

When Bitcoin hits $200,000 and your altcoins