Tax Loss Harvesting Crypto Koinly: 2026 Step-by-Step Guide

Affiliate Disclosure: This article contains affiliate links. If you sign up for Koinly through a link on this page, I may earn a commission at no extra cost to you. I only recommend tools I have researched and believe are worth your time.

Tax Disclaimer: This article is for informational purposes only and does not constitute professional tax or financial advice. Consult a qualified tax professional for advice specific to your situation.

Tax loss harvesting crypto Koinly users can do before year-end is one of the most practical ways to legally reduce your tax bill — and it costs nothing to identify the opportunities. The strategy is straightforward in principle: you sell crypto positions that are sitting at a loss, use those realised losses to offset capital gains elsewhere in your portfolio, and reduce the amount of tax you owe on your overall investment activity.

What makes this genuinely powerful in 2026 is something that doesn’t apply to stock investors: the wash sale rule does not currently extend to cryptocurrency in the United States. That means you can sell Bitcoin at a loss, immediately repurchase it at the same price, and still claim the full capital loss for tax purposes. No 30-day waiting period. That window may not stay open indefinitely — more on that below — but for now it represents a tax optimisation opportunity that equity investors don’t have access to.

After thirty years in finance, I’ve seen investors leave significant money on the table simply because they didn’t track their unrealised losses systematically. The manual approach — logging into each exchange individually, trying to calculate cost basis across wallets — is what makes this feel harder than it is. Koinly consolidates all of that into a single dashboard and flags harvesting opportunities directly. The mechanics are straightforward once the data is organised.

This guide covers how tax loss harvesting crypto Koinly users can approach this strategy effectively — including the step-by-step workflow, a worked example with real numbers, jurisdiction rules, common mistakes, and when the strategy isn’t worth pursuing.

If you’re not already tracking your portfolio in Koinly, the free plan gives you immediate access to unrealised loss data at no cost: start with Koinly free here.

What Is Tax Loss Harvesting Crypto? How Koinly Makes It Simple

Tax loss harvesting crypto means selling a digital asset that has declined below your purchase price, realising a capital loss, and using that loss to offset capital gains from other investments. The result is a lower net taxable gain — and a lower tax bill. Koinly automates the tracking side of this process, making it far easier to identify and act on harvesting opportunities without manually reconciling data across multiple exchanges.

For crypto investors, the mechanism works as follows:

You hold a crypto asset whose current market value is below what you paid for it — an unrealised loss.
You sell that asset, converting the unrealised loss into a realised capital loss.
That realised loss offsets capital gains you’ve made elsewhere — from other crypto sales, stock sales, or other investments.
Your net taxable capital gain is reduced, lowering your tax liability for that year.
You may then repurchase the same asset if you want to maintain your position, since wash sale rules don’t currently apply to crypto in the US.

There are additional benefits beyond offsetting capital gains. In the US, if your capital losses exceed your capital gains in a given year, you can deduct up to $3,000 of excess losses against ordinary income annually. Any losses beyond that threshold carry forward indefinitely to future tax years.

A Worked Example: How Tax Loss Harvesting Reduces Your Bill

Concrete numbers make this easier to understand than abstract descriptions. Here is a realistic scenario showing tax loss harvesting crypto Koinly users can model directly in the platform before executing any trades.

Your situation:

You sold Bitcoin earlier in the year, realising a capital gain of $12,000
You hold Ethereum, currently sitting at an unrealised loss of $7,000 (you paid $10,000 and it’s now worth $3,000)
You are in the 15% long-term capital gains tax bracket

Without tax loss harvesting:

You owe tax on the full $12,000 Bitcoin gain. At 15%, that’s $1,800 in tax.

With tax loss harvesting:

You sell your Ethereum position, realising the $7,000 loss. That loss offsets $7,000 of your Bitcoin gain, reducing your net taxable gain to $5,000. At 15%, you now owe $750 in tax.

Tax saved: $1,050 — from a single decision made before December 31.

Because the wash sale rule doesn’t currently apply to crypto in the US, you can immediately repurchase Ethereum at the current price of $3,000, maintaining your position. Your new cost basis in Ethereum is $3,000. If Ethereum recovers and you sell in the future, that gain will be calculated from the new lower basis — but you’ve deferred and potentially reduced your tax liability now, when it matters.

The Wash Sale Rule and Crypto: What You Need to Know in 2026

This is the most important regulatory context for any tax loss harvesting crypto Koinly strategy in 2026, and it deserves more than a passing mention.

The Current Position

The wash sale rule — which disallows a loss if you repurchase the same or substantially identical asset within 30 days before or after the sale — applies to securities. The IRS classifies cryptocurrency as property, not a security. As of 2026, the wash sale rule does not apply to crypto in the United States. This means US-based crypto investors can sell at a loss and immediately repurchase the same asset without losing the tax benefit of the loss.

The Regulatory Direction

This position is under active pressure. Congress has attempted to extend wash sale rules to crypto multiple times — the Build Back Better Act in 2021, the Lummis-Gillibrand Act, and further proposals in 2024 and 2025. None have passed into law as of early 2026, but the direction is unmistakable. In mid-2025, a Congressional Discussion Draft explicitly proposed applying wash sale rules to digital assets. The IRS has already built the reporting infrastructure for it — Form 1099-DA, which became mandatory in 2026, includes Box 1i for “Wash Sales Loss Disallowed.”

The practical implication: the wash sale exemption for crypto is available now, but investors should not build long-term tax strategies that depend on it continuing indefinitely. If you are harvesting losses aggressively, document your transactions carefully and maintain awareness of any legislative changes. Consulting a qualified tax professional who follows crypto regulation closely is advisable if this forms a significant part of your tax planning.

Form 1099-DA and 2026 Reporting

Starting in 2026, exchanges are required to report cost basis on covered digital asset transactions to the IRS via Form 1099-DA. This means the IRS now has visibility into your crypto gains, losses, and basis in a way it previously didn’t. The era of informal crypto reporting is over. Accurate record-keeping — and using a platform like Koinly that tracks cost basis correctly — is no longer optional for active investors.

Jurisdiction Rules: Tax Loss Harvesting Crypto Outside the US

The wash sale exemption is a US-specific situation. The rules differ significantly across other major jurisdictions, and getting this wrong can be costly. Here is how tax loss harvesting crypto Koinly users in different countries should approach the strategy.

United Kingdom

The UK has a “bed and breakfasting” rule — the equivalent of a wash sale provision — that applies to crypto. If you sell a crypto asset at a loss and repurchase the same asset within 30 days, HMRC disallows the loss for tax purposes. UK investors can still harvest losses, but they must wait 31 days before repurchasing the same asset, or they can repurchase a different but correlated asset in the interim. The annual Capital Gains Tax exemption is £3,000 for the 2025/26 tax year. From January 2026, under CARF, all UK crypto service providers are required to report customer transaction data directly to HMRC.

Australia

Australia’s ATO treats crypto as property subject to Capital Gains Tax. Tax loss harvesting is generally permitted, but the ATO has anti-avoidance provisions that apply when transactions appear to be purely tax-motivated with no genuine change in position. Investors who sell and immediately repurchase within a short window repeatedly may attract scrutiny. Australian investors should also note that assets held for more than 12 months qualify for a 50% CGT discount — factoring this into harvest timing decisions matters.

Germany

Germany’s approach is structurally different. Crypto held for more than one year is completely tax-free on disposal — the Haltefrist (holding period) rule. This changes the incentive structure significantly. Selling to harvest a loss resets your holding period when you repurchase, potentially costing you the tax-free treatment on the entire recovered position. For German investors, the decision to harvest a loss requires weighing the immediate tax benefit against the loss of the one-year exemption clock. In many cases, holding through a dip is more tax-efficient in Germany than harvesting aggressively.

Other Jurisdictions

Rules vary widely across other countries. Under CARF and DAC8, which became active across 40+ countries in 2026, crypto service providers are sharing transaction data across borders with tax authorities. If you are filing in multiple jurisdictions or are uncertain about your local rules, consult a qualified tax professional familiar with crypto taxation in your country before executing a harvesting strategy.

Tax Loss Harvesting Crypto Koinly Step-by-Step Workflow

Koinly’s tax optimizer makes the identification process straightforward. Here is the complete tax loss harvesting crypto Koinly workflow from start to finish.

Step 1: Import All Your Wallets and Exchanges

Before Koinly can show you accurate unrealised loss data, it needs your complete transaction history across all connected accounts. Connect every exchange and wallet you use via API or CSV file upload. Missing wallets create cost basis gaps that lead to inaccurate gain and loss calculations — which defeats the purpose of the exercise.

Koinly wallets page showing connected exchange and option to add more wallets for tax loss harvesting crypto

Koinly Wallets page — connect all your exchanges and wallets before running tax loss harvesting calculations

Step 2: Open the Dashboard and Check Your Tax Optimization Tab

Once your data is imported, navigate to the Koinly Dashboard. You’ll see three tabs at the top: Overview, NFTs, and Tax optimization. The Overview tab shows your total portfolio value, cost basis, unrealised gains, and realised gains — giving you an immediate picture of where you stand. Click the Tax optimization tab to access Koinly’s dedicated harvesting tools.

Koinly dashboard showing portfolio overview with cost basis, unrealised gains and tax optimization tab

Koinly Dashboard — the Tax optimization tab gives you direct access to unrealised loss data

Step 3: Identify Your Harvesting Candidates

Review the assets showing unrealised losses. Prioritise in this order:

Short-term losses first — assets held for less than one year. Short-term gains are taxed at ordinary income rates (higher), so offsetting them with short-term losses produces the greatest tax saving per dollar of loss harvested.
Large unrealised losses — where the absolute loss amount is significant enough to justify the transaction costs of selling and repurchasing.
Assets you are comfortable selling temporarily — or permanently if you no longer want the position.

Step 4: Review Your Capital Gains Summary

Before selling, check Koinly’s Tax Reports page for your capital gains summary for the current tax year. This tells you how much in realised gains you’ve already accumulated — which determines how much harvesting is actually useful. If you’ve had a low-gain year, harvesting aggressively may generate more losses than you can use immediately, though they do carry forward.

Koinly tax reports page showing capital gains summary for tax loss harvesting crypto koinly planning

Koinly Tax Reports page — review your capital gains summary before deciding which losses to harvest

Step 5: Execute the Sale on Your Exchange

Go to the relevant exchange and sell the identified position. Koinly does not execute trades — it is a tax reporting and portfolio tracking tool. The sale must be made directly on your exchange or wallet.

Step 6: Sync Koinly and Verify the Loss Is Recorded

After the sale, sync your exchange in Koinly to import the new transaction. Check that the realised loss is reflected correctly in your capital gains summary. Verify the cost basis Koinly has assigned to the sold lot — if your cost basis data was incomplete before the sale, the calculated loss may not match your expectation.

Step 7: Repurchase If Desired

If you want to maintain your position in the asset, repurchase it immediately (US investors) or after 31 days (UK investors). Your new cost basis is the repurchase price. Import the new transaction into Koinly to keep your records complete.

For a full overview of everything Koinly tracks and calculates, see our complete Koinly review.

Short-Term vs Long-Term Losses: Which to Harvest First

Not all capital losses are equal in their tax impact, and harvesting order matters.

Short-term capital gains — from assets held less than one year — are taxed at ordinary income rates in the US, which can be as high as 37% for higher earners. Long-term capital gains — from assets held more than one year — are taxed at preferential rates of 0%, 15%, or 20% depending on income.

Short-term losses offset short-term gains first, and long-term losses offset long-term gains first under IRS netting rules. Excess short-term losses can then offset long-term gains. The practical implication: if you have a mix of gains, prioritise harvesting short-term losses first, as these offset the highest-taxed gains and generate the greatest dollar-for-dollar tax saving.

Koinly’s capital gains summary separates short-term and long-term figures, making it straightforward to see where the offset opportunity is greatest before deciding which positions to harvest.

Common Mistakes When Harvesting Crypto Losses

Harvesting Without Complete Cost Basis Data

This is the most common and most damaging mistake when attempting tax loss harvesting crypto Koinly users encounter. If your transaction history is incomplete — missing wallets, unimported exchange data, gaps from exchanges that have since closed — Koinly cannot calculate your cost basis accurately. A loss that appears on screen may be incorrect. Import your complete transaction history before making any harvesting decisions based on Koinly’s data.

Harvesting Too Late in the Tax Year

Capital losses must be realised before December 31 to apply to the current tax year. Investors who wait until the final days of December frequently miss the window due to exchange processing delays, account verification holds, or simply running out of time to evaluate their options properly. Reviewing your harvesting opportunities in October or November gives you time to act deliberately rather than reactively.

Ignoring Transaction Costs

Every sale generates a transaction fee. On some exchanges, particularly for smaller or less liquid assets, fees can represent a meaningful percentage of the transaction value. If the tax saving from harvesting a loss is smaller than the combined transaction costs of selling and repurchasing, the exercise costs you money. Run the numbers before acting — Koinly’s capital gains preview lets you model the impact of a sale before executing it.

Misidentifying Internal Transfers as Losses

Moving crypto between your own wallets is not a taxable event and does not generate a capital loss. If Koinly is not correctly identifying internal transfers — because wallets are not all connected or transfer matching is incomplete — what appears as a loss may be a miscategorised transfer. Always verify that flagged losses represent genuine disposals before acting on them.

Assuming the Wash Sale Exemption Will Last

Building an aggressive multi-year tax strategy around a regulatory exemption that may change is a risk management problem, not just a tax problem. The wash sale exemption for crypto is available in 2026, but the legislative direction suggests it may not remain available indefinitely. Document every harvest transaction carefully and stay current with any legislative developments.

Forgetting That Repurchasing Resets Your Holding Period

When you sell an asset and repurchase it, your holding period resets. If you were approaching the one-year threshold for long-term capital gains treatment on a position, harvesting the loss and immediately repurchasing means you start the clock again. In some cases, waiting a few weeks until you cross the one-year mark before selling — locking in long-term loss treatment — is worth considering.

When Tax Loss Harvesting Crypto Is Not Worth It

Your Losses Are Small Relative to Transaction Costs

If your unrealised losses are modest — a few hundred dollars — and your exchange charges meaningful fees, the net benefit after transaction costs may be negligible or negative. Small losses are generally not worth harvesting unless they can be batched efficiently.

You’re in a Low Tax Bracket

US investors whose taxable income falls below the 0% long-term capital gains threshold — $48,350 for single filers in 2025 — already pay no tax on long-term crypto gains. Harvesting losses in this situation provides limited benefit for the current year, though losses can carry forward to higher-income years.

You’re a German Investor Approaching the One-Year Holding Mark

Germany’s one-year tax-free holding rule often makes harvesting losses counterproductive. If you’re close to the 12-month threshold, the tax-free gain on recovery is worth more than the immediate loss deduction in most scenarios.

You Have No Gains to Offset This Year

If you’ve had a low-gain or no-gain year, the immediate benefit of harvesting losses is limited to the $3,000 ordinary income deduction in the US. Losses carry forward, so there’s no penalty for harvesting in a low-gain year — but the urgency is lower.

Using Koinly’s Free Plan for Year-Round Loss Tracking

One of the most underused aspects of the tax loss harvesting crypto Koinly free plan offers is the ability to monitor unrealised losses throughout the year, not just at tax time. The tax optimizer updates as your portfolio data syncs, which means you can identify harvesting opportunities during market dips rather than scrambling in December.

Professional investors who manage tax position actively don’t wait until year-end. They monitor the gap between current market value and cost basis continuously and act when meaningful opportunities arise — particularly during significant market downturns when multiple positions may be temporarily at a loss simultaneously.

The free plan gives you the tax optimizer and capital gains preview without any cost. You only need to upgrade to a paid plan when you want to download the official tax report. For monitoring and planning purposes, the free tier is entirely sufficient. See our Koinly free plan guide for a full breakdown of what’s available at no cost.

For more on how Koinly calculates and tracks your complete tax position, see our full Koinly review and our detailed Koinly pricing guide.

Frequently Asked Questions

Does the wash sale rule apply to tax loss harvesting crypto Koinly users in 2026?

No — as of 2026, the wash sale rule does not apply to cryptocurrency in the United States. The IRS classifies crypto as property, not a security, which means the wash sale restriction that applies to stocks does not currently extend to digital assets. However, Congress has proposed extending the rule multiple times and the regulatory direction is clear. UK investors face a similar 30-day rule under HMRC’s bed and breakfasting provisions.

Can I harvest losses and immediately repurchase the same crypto?

In the US, yes — currently. You can sell Bitcoin at a loss and repurchase it immediately, claiming the full capital loss while maintaining your position. UK investors must wait 31 days before repurchasing the same asset or the loss will be disallowed by HMRC. Australian and German investors should review the specific rules applicable to their jurisdiction before acting.

How much can I deduct in crypto losses?

In the US, capital losses offset capital gains without limit. If your losses exceed your gains, you can deduct up to $3,000 of the excess against ordinary income per year. Any remaining losses carry forward indefinitely to future tax years. Rules differ in other jurisdictions — consult a qualified tax professional for country-specific guidance.

Does Koinly automatically identify tax loss harvesting crypto opportunities?

Yes. Koinly’s tax optimizer tool displays your unrealised gains and losses across all connected wallets and exchanges, flagging positions that could be harvested. This is available on the free plan — you don’t need to purchase a paid plan to access this feature. You still need to execute any trades manually on your exchange; Koinly is a tracking and reporting tool, not a trading platform.

Do I need a paid Koinly plan to use the tax optimizer?

No. The tax optimizer and capital gains preview are both available on Koinly’s free plan. You only need to upgrade to a paid plan when you want to download official tax reports for filing. For planning and monitoring purposes throughout the year, the free plan is sufficient.

What happens to unused capital losses?

In the US, capital losses that exceed your capital gains in a given year can be used to offset up to $3,000 of ordinary income, with any remaining balance carried forward to future tax years indefinitely. There is no expiry on carried-forward capital losses under current US tax law. Other jurisdictions have different carryforward rules — verify the specific treatment with a tax professional.

Is tax loss harvesting crypto legal?

Yes. Tax loss harvesting crypto is a legal and widely used tax optimisation strategy. It is not tax evasion — it is the proper use of capital loss provisions within the tax code. The key constraint is that transactions must represent genuine economic activity, not purely artificial arrangements designed solely to manufacture losses with no real change in position.

The Bottom Line

Tax loss harvesting crypto Koinly makes straightforward is one of the most practical tax optimisation strategies available to active crypto investors — and the identification work costs nothing. Koinly’s free plan surfaces your unrealised losses clearly, lets you model the impact of a harvest on your overall tax position, and tracks everything you need to execute the strategy correctly.

The key discipline is not to leave this until December. Reviewing your unrealised losses regularly throughout the year, acting during market dips when opportunities are greatest, and keeping your transaction history complete and accurate in Koinly are the habits that turn this from a theoretical strategy into a real, consistent tax saving.

Two things to keep in mind as you plan: the wash sale exemption for crypto in the US may not last indefinitely, and Form 1099-DA means the IRS now has direct visibility into your crypto activity. Both points reinforce the same conclusion — accurate records and a clear strategy are worth more now than they were two years ago.

If you’re not already tracking your portfolio in Koinly, the free plan gives you immediate access to the tax optimizer and unrealised loss data with no commitment required. Start with Koinly free here — connect your wallets, check your position, and see what harvesting opportunities are available before year-end.

Related reading: