The IRS’ wash sale rule does not currently apply to cryptocurrency because it considers virtual currencies to be property rather than securities. This creates a loophole in which crypto is able to escape the wash sale rule. This means that technically speaking, crypto wash sales are allowed.

The “Wash Rule” is a tax rule that applies to the sale or exchange of securities, including stocks, bonds, and mutual funds. It is designed to prevent taxpayers from avoiding capital gains tax by selling a security at a loss and then repurchasing a substantially similar security within a short period of time.

[The applicability of the “Wash Rule” to crypto is debatable! Consult an aggressive tax preparer!]

Under the Wash Rule, if a taxpayer sells a security at a loss and then buys a substantially similar security within 30 days before or after the sale, the loss is disallowed for tax purposes. This means the taxpayer cannot use the loss to offset other capital gains or reduce their tax liability.

The Wash Rule applies to all securities but NOT crypto because it is considered property as of this writing. If a taxpayer sells a cryptocurrency at a loss and then buys a substantially similar cryptocurrency within 30 days, the loss is allowed under the Wash Rule.

Check out this link for more info: The Wash Rule