Crypto tax loss harvesting is moving to the top of many investors’ to-do lists as 2025 winds down and new reporting rules loom. With prices sliding and regulation tightening, year-end planning in digital assets is no longer optional — it’s becoming a requirement.
Key Points
Tyrone Ross, principal and founder of 401 Financial, sat down with Julie Hyman to walk through what crypto holders should be thinking about before December 31, from booking losses to cleaning up wallets and preparing for a very different IRS landscape in 2026.
For Ross, the message is clear: understand how the current rules work, don’t assume the tax code treats crypto like stocks, and be ready for more detailed reporting from exchanges in the years ahead.
No Wash Sale Rule, but Crypto Tax Loss Harvesting Has a Catch
A central point Ross raised is that crypto still sits in a different category from traditional securities in one crucial respect: there is currently no wash sale rule for digital assets.
In traditional markets, investors who sell a stock at a loss and buy it back too quickly risk running afoul of wash sale restrictions, which can disallow the loss for tax purposes. With crypto, Ross noted, that rule does not apply in the same way.
That opens the door to a specific kind of crypto tax loss harvesting strategy. If an investor is sitting on a paper loss in a coin or token, they can sell that position, recognize the loss for tax purposes, and then re-enter the same position right away.
As Hyman summarized during the conversation, this means that if you have a loss “on your balance sheet, so to speak,” you can exit, take advantage of the loss, and then immediately buy back into the asset. Ross confirmed: “Right away.”
However, he cautioned that this is not the end of the story.
The Economic Standard Doctrine: Why Timing Still Matters
While the lack of a wash sale rule makes crypto tax loss harvesting more flexible, Ross warned investors not to treat it as a loophole they can exploit without limit.
He pointed to what he called the “Economic Standard doctrine” as an important consideration. In practice, that means investors should be able to show some type of real, material economic change in their positions — not just rapid-fire buying and selling every few seconds purely for tax outcomes.
In other words, the IRS may look at whether there is genuine economic substance behind the transaction patterns. If investors appear to be moving in and out of positions in a way that lacks clear economic rationale, beyond simply triggering losses, they could face stiff consequences.
“If you don’t do that, the penalties are harsh,” Ross said, underscoring that the mechanics of crypto tax loss harvesting should be handled carefully, not casually. He also reminded viewers that his comments are not tax advice, reinforcing the need for investors to consult professionals.
Using Crypto Losses Against Stock Gains
For investors who hold both digital assets and traditional equities, Ross highlighted another key aspect of crypto tax loss harvesting: losses on crypto positions can be written off against gains in stocks.
He used a familiar example. If an investor has exposure to the “Mag 7” technology names and those positions are up, while their crypto portfolio is down, harvesting crypto losses can help offset some of the gains realized on the equity side.
That makes accurate records and good portfolio oversight especially important. Ross stressed the value of working with an advisor or, for do-it-yourself investors, maintaining detailed books and records. Tracking entry prices, sale prices and timing across assets is essential to making informed decisions about tax loss harvesting and broader portfolio rebalancing.
The core idea is that crypto tax loss harvesting is not just about digital assets in isolation. It can be part of an integrated tax and investment strategy that spans the entire portfolio.
IRS Focus and the New 1099-DA Rule in 2026
Hyman also pressed Ross on how much attention the IRS is paying to crypto now compared with a year or two ago, and whether anything has changed under an administration considered relatively friendly to digital assets.
Ross answered with a pointed distinction: this administration may be friendly to crypto, but it is “even friendlier to making money.”
Starting in 2026, all exchanges will be required to issue a new form — the 1099-DA. Under the new rule, broker-dealers and exchanges must provide this document, which will report the gross proceeds of an investor’s trades.
Ross emphasized that “gross proceeds is key.” At first, the 1099-DA will not necessarily include the full cost basis information that investors might expect. The reporting will become more granular in 2027, when platforms will be required to provide cost basis and gain/loss details if they have that data.
For crypto holders, this shift means the IRS will have a clearer view of activity on exchanges, even if the initial 1099-DA forms do not fully capture every tax-relevant detail. Against this backdrop, Ross urged investors to get ahead of the curve.
Tracking Trades and Practicing ‘Wallet Hygiene’
With new reporting deadlines on the horizon, Ross said crypto investors need to take more personal responsibility for tracking their own transactions.
He recommended using software tools but also stressed the importance of hands-on recordkeeping: knowing when you buy, when you sell, and which wallets are involved.
For those active in the space, that means paying attention to wallet hygiene toward the end of the year. If an investor has multiple wallets — for example, a Coinbase wallet in addition to a Coinbase exchange account — reconciling those different sets of transactions becomes essential.
Crypto tax loss harvesting, in this context, is only as accurate as the data behind it. Without a clear view of token flows and trade history, investors risk misreporting or missing opportunities to realize losses and rebalance.
Ross framed the period before December 31 as a time to review, clean up and organize. With crypto “nose diving here towards the end of the year,” as he put it, the combination of lower prices and looming reporting changes makes this an especially important window to act.
Volatility, Family Conversations and Time Horizons
Beyond mechanics and forms, Ross also addressed the emotional side of crypto investing, especially as families gather for the holidays.
Hyman joked about the scenario many investors may face at the Thanksgiving table: “Uncle Joe or Uncle Tyrone, you told me to buy crypto last year, and it hasn’t worked out so well for me. What do you have to say for yourself now?”
Ross responded with a theme he often returns to: volatility is part of the package. He likened buying crypto to buying a ticket for a roller coaster at Disney World or Six Flags. Once you have the ticket, you cannot tell the operator which dips you want to skip. You do not get to choose only the upside.
For Ross, volatility also creates opportunity, including opportunities like crypto tax loss harvesting. But he was clear that this asset class should be approached with the right mindset.
He described crypto as a “volatile teenager,” noting that when many of us were 16, we were also highly unpredictable. In his view, the market is still very early in its development.
Ross said that anyone buying crypto should do so with at least a five-year time horizon. That perspective, he argued, helps reduce the urge to second-guess every price move — and cuts down on the awkward questions at the next Thanksgiving gathering. Hyman responded by noting that a five-year roller coaster is “a long roller coaster ride,” especially for those who do not love roller coasters.
Preparing for 2026: Rules, Records and Realistic Expectations
Taken together, Ross’s comments outline a three-part checklist for crypto investors closing out 2025.
First, understand how crypto tax loss harvesting works under today’s rules, including the absence of a wash sale rule and the need to respect broader doctrines about economic substance. Used thoughtfully, year-end loss harvesting can help offset gains elsewhere and reset positions for the next cycle.
Second, anticipate the growing scrutiny from the IRS. The arrival of 1099-DA forms in 2026 and more detailed data in 2027 means exchanges and broker-dealers will be feeding more structured information to the government. Investors who keep their own records in order — across exchanges and wallets — will be better positioned to respond.
Third, align expectations with the reality of the asset class. Crypto remains volatile, and that volatility can be both a risk and a tool. Viewing it as a long-duration, often bumpy ride changes how short-term setbacks are perceived — whether in market performance or at the family dinner table.
As the year comes to a close, Ross’s message is less about predicting prices and more about preparation: tighten up documentation, review positions, and treat crypto not as a quick thrill, but as a demanding, long-term commitment that rewards discipline as much as conviction.
