Crypto wash sale rule push returns in Congress as bitcoin losses mount

Congress is again weighing whether to extend the crypto wash sale rule to digital assets, a change that could curb a tax strategy used by investors in bitcoin, ether and other tokens. The push comes after bitcoin, the largest cryptocurrency, has lost about half its value since October 2025, making investment losses more relevant for taxpayers, according to experts cited by CNBC.

Rep. Jodey Arrington, a Texas Republican, introduced the Applying Existing Tax Anti-Abuse Rules to Digital Assets Act in June. The bill would subject crypto transactions to the same wash sale restrictions that already apply to stocks, bonds and other securities.

The Treasury Department estimated in 2024 that applying wash sale rules to digital assets would raise nearly $24 billion over 10 years. Troy Lewis, a certified public accountant and professor of accounting and tax at Brigham Young University, told CNBC that the current treatment has created a large opening for crypto investors and that applying the rule to digital assets would raise federal revenue.

What is the crypto wash sale rule?

A wash sale rule limits when an investor can claim a tax loss after selling an asset and quickly buying back the same or a substantially similar one. For securities, investors generally cannot deduct the loss if they buy the same or substantially similar security within 30 days before or after the sale.

The rule does not block the trade itself. It blocks the tax benefit from a sale-and-repurchase pattern that leaves the investor with much the same market exposure while generating a deductible loss.

Capital losses can be used to offset capital gains, according to the Internal Revenue Service. If losses exceed gains, investors can deduct up to $3,000 against ordinary income and carry additional losses into future years.

Why crypto is treated differently

Existing wash sale rules do not generally cover direct holdings of cryptocurrency because federal tax rules treat crypto as property rather than as a security, Lewis said. Wash sale restrictions have existed in some form since 1921, long before digital assets became a mainstream investment market.

That gap means an investor who directly holds crypto can sell a token at a loss and buy it back quickly while still claiming the loss, a practice tax professionals describe as tax-loss harvesting. Lewis said the strategy has been widely used by crypto investors.

The treatment can differ for investors using funds. Lewis said bitcoin exchange-traded funds and other crypto ETFs are securities, so investors in those products likely must follow existing wash sale rules.

Where the legislation stands

Colin Wilhelm, manager of tax legislative affairs at Grant Thornton, told CNBC that Arrington’s bill is notable because it comes from a Republican lawmaker after earlier efforts by the Biden administration and congressional Democrats during the pandemic period.

Rep. Ron Estes, a Kansas Republican, said at a June House Ways and Means Committee hearing that extending wash sale rules to digital assets would ensure they are not treated better or worse than similar financial assets and would give investors and traders more consistency.

Wilhelm wrote in a Grant Thornton analysis that a recent group of crypto tax bills has support from the Republican majority and leadership of the House Ways and Means Committee, marking the first time the leadership of a tax-writing committee has advanced its own cryptocurrency proposals.

Experts cited by CNBC said the House crypto tax package, including the wash sale measure, is unlikely to pass in the coming months as Congress nears the midterm elections. They said the bills still indicate stronger interest in revisiting digital-asset tax rules.

The tax effort is separate from a broader Senate debate over crypto regulation. The Clarity Act, under discussion in the Senate, would address crypto market structure and includes a provision that would ban federal officials from issuing digital assets, according to CNBC.

This story draws on original reporting from CNBC.