Crypto Wash Sales in 2026: Why Section 1091 Usually Works Differently for Digital Assets

IRC §1091 generally disallows a loss when a taxpayer sells stock or securities and acquires substantially identical stock or securities during the 61-day window beginning 30 days before the sale and ending 30 days after it.

Under current federal tax law, many commonly traded digital assets are treated as property and are not stock or securities for Section 1091 purposes. As a result, the statutory wash-sale rule often does not disallow a loss merely because the taxpayer repurchases the same digital asset immediately.

Do Not Assume Every Digital Asset Is Outside Section 1091

“Digital asset” is a broad category. A token, contract, fund interest, derivative, or other instrument may have legal and tax characteristics that require separate analysis. The IRS's general property treatment for convertible virtual currency does not establish that every blockchain-based instrument is never a security for every Code provision.

A Real Sale Still Has to Occur

The taxpayer must actually dispose of the asset and complete a bona fide transaction. Self-transfers between wallets owned by the same taxpayer do not create a sale. Circular trades, transactions with controlled parties, or arrangements that leave ownership unchanged may not produce the intended loss.

The absence of Section 1091 does not eliminate related-party loss rules, straddle rules, constructive-sale rules, dealer or trader issues, sham-transaction principles, or other provisions that may apply to particular facts. Those rules should not be invoked automatically, but they should be considered when the transaction is more complex than an ordinary market sale and repurchase.

Tax-Loss Harvesting Changes Basis and Holding Period

When the loss is respected and the asset is repurchased, the new units generally receive a new cost basis and holding period. A later recovery in price can therefore produce taxable gain, and a short holding period may change the character of a later disposition.

Transaction fees, spreads, lot identification, wallet transfers, and broker reporting should be included in the calculation. Selling only part of a position requires support for the units treated as sold under the taxpayer's identification method.

Current Law Can Change

Congress has repeatedly considered extending wash-sale treatment to digital assets. A transaction should be analyzed under the law effective on the actual sale date rather than relying on a prior-year article or planning memo.

Records to Keep

Keep exchange confirmations, wallet addresses, timestamps, quantities, fees, fair-market-value data, lot identification, proof that the buyer was unrelated, and records showing the taxpayer no longer owned the disposed units after the sale.

This information addresses general federal tax treatment and is not a recommendation to execute a digital-asset trade. The result depends on the instrument, transaction structure, ownership, and law in effect on the transaction date.