Disclaimer: Educational purposes only. Not tax advice. Talk to your own tax professional about your specific situation. Specific to the USA.

Year-end is approaching and the window to make powerful tax plays for the 2025 tax year is closing fast.

I’m a CPA with a deep background in crypto tax (formerly helped build a client-facing crypto service firm as GM, now leveraging that experience to build robust crypto tax software as Product Lead at Summ (formerly Crypto Tax Calculator)).

I see the same confusion every year, so I wanted to share some high-level, educational context around tax loss harvesting that may be useful as people review their 2025 activity.

What is Tax Loss Harvesting?

Tax loss harvesting is the act of intentionally selling an asset that has gone down in value from your initial purchase in order to "realize" the loss for tax purposes.

By selling/swapping at a loss (as opposed to simply holding), you trigger a tax loss that can be used to directly offset any capital gains, or even ordinary income (up to $3k, the rest is carried forward).

The key point: losses don’t exist for tax purposes until they’re realized. Simply holding an underwater asset doesn’t create a deductible loss.

How does it work?

A simplified example:

If that losing position is disposed of before year-end, the loss can reduce the net taxable capital gain. If it isn’t, the unrealized loss provides no tax benefit that year.

I see a lot of traders hold onto losers “just in case,” then get surprised by a larger-than-expected tax bill because those losses were never realized.

PS — dead memecoins and NFTs are a tax loss harvesting goldmine.

Simply put, if I have a $50,000 capital gain from selling ETH at profit (or any crypto, stock, or real estate), but am sitting on a $22,000 unrealized loss from a bad memecoin trade, I could dispose of that asset to reduce my taxable capital gains from $50,000 –> $28,000.

The catch?

This disposal needs to happen BEFORE YEAR END in order for it to count for your next tax return.

Why is this current market a particularly good opportunity (and risk)?

In general, the crypto market has seen a significant increase in value throughout 2025. Bitcoin has climbed 30+% at times, ETH climbing over 150%+ at times etc.

Each crypto-to-crypto swap is taxable. And in rising market, without realizing it, many people have likely triggered taxable gains as they swapped crypto throughout the year.

But here at year end, markets are generally down from the highs we saw just a few months ago ($125k BTC –> $90k).

This means that many people are likely sitting on unrealized losses while simultaneously sitting on capital gains they will need to pay tax on.

I've seen this trope far too many times.

–> Flip gains throughout the year

–> positions are underwater by year end

–> but they still owe the full amount of tax on the gains because they never realized their losses.

For those who are prepared, this is a golden opportunity to pull this lever and directly reduce their tax bill. For those unprepared, they'll be paying far more tax than they need to all because they failed to properly tax plan and consider end-of-year tax strategy.

Can I rebuy after I sell?

The short answer is, yes, you can rebuy. This question stems from the fact that with securities, the "wash sale rule" requires you wait 30 days before you can rebuy, otherwise, the loss doesn't count. However, with crypto, this is not the case.

The IRS classifies crypto as property, not a security, see here. The wash loss sale rule specifically applies only to securities, not property, see here. Thus, wash loss sale rule is not applicable for crypto (yet).

This means you could sell your crypto that's underwater, and then decide to rebuy the same crypto without needing to wait the full 30 days.

In other words, going to my prior example, someone could sell their losing assets and realize the $22,000 loss, and then later rebuy the same amount of those assets back. The end result? They still realize the loss, and still hold the assets in hopes they go back up.

There is a caveat here: While the wash sale rule doesn't apply to crypto, the "Economic Substance Doctrine" does.

What is the Economic Substance Doctrine ("ESD")?

The ESD is the IRS's magic wand they can waive to disallow a loss they deem to "not have economic substance". In other words, if you're in an audit and the IRS determines a loss is a result of a transaction that did not have any economic substance (ie selling and rebuying immediately for the SOLE purpose of finessing a tax loss), then they might disallow the loss.

This means it is best practice to make these transactions with additional goals in mind. e.g., maybe you'd like to rebalance your portfolio so you sell down your losing positions to stop the bleeding and then independently decide which assets you'd like to be exposed to moving forward.

The takeaway here is that while the wash sale rule doesn't apply to crypto, that doesn't mean the IRS can't disallow the loss if they determine the transaction didn't have economic substance.

What is the best way to know which of my assets to sell?

To evaluate harvesting opportunities, you'll need your detailed transaction history and cost basis by lot (not average)

For the insane people out there, some do this by Excel. Jokes aside, this is a feasible option for anyone who has fairly simple activity such as just a few trades a year on a single exchange.

For those who want a more automated process or have a more complicated transaction history (multiple exchanges/wallets, more than a dozen trades a year etc), most rely on a crypto tax calculator. Coming from the service-provider space, we only used software as excel just doesn't cut it in most cases.

For software, there are a few options out there to chose from, but I personally use Summ for mine (obviously!). That said, I always recommend trying a few and seeing which works best for you. Don't just pick one because someone online likes it, try em out yourself!

Determining opportunities:

Once you've loaded your data into your software of choice, make sure you're transaction history looks complete and accurate. If the software offers a tax loss harvesting feature, then you can use that for your investigation. But if your software doesn't offer that feature, one super easy way to do some testing is to simply create manual transactions simulating sales to see what the tax impact is. From here, you can dig even deeper by looking at the tax lots being disposed.

For example, maybe I simulate the sale of 1 BTC and it comes back with an overall $2k loss. But, I can drill down even further.

When I look at the tax lots being disposed, I can see that the 1 BTC sale might be made up of 3 different tax lots. Maybe two of them are resulting in a loss of $1,500 and $4,500 respectively, and the third tax lot is resulting in a gain of $4,000, making the overall sale a $2,000 net loss.

With this info, now I know I don't need to sell the whole 1 BTC, but instead can just sell the partial amounts that makes up the two tax lots that would result in a total of $6,000 loss, which is even more powerful then selling the full 1 BTC.

By doing this, I am only selling the BTC tax lots that result in a loss while leaving the tax lot with an unrealized gain in place.

Final Thoughts

As a CPA, I am CONSTANTLY asked how to reduce tax. This is truly one of the most powerful levers a taxpayer can pull in order to reduce their bill to Uncle Sam.

If anyone has any questions or commentary on the topic, feel free to drop them below. Per usual, always consult with your own tax professional for tax advice specific to you. Cheers, Merry Christmas, Happy Holidays, and Happy New Year!

– JustinCPA, Product Lead @ Summ