Koinly Wash Sale Rules 2026: The Best Guide to Crypto, ETFs & Spec ID
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This article is for informational purposes only and does not constitute professional tax or financial advice. Tax laws vary by country and change frequently. Consult a qualified tax professional for advice specific to your situation.
Last verified: August 2026, using the IRS’s official Form 1099-DA instructions, Revenue Procedure 2024-28, and IRS Notice 2026-20.
Koinly Wash Sale Rules: Did Selling and Rebuying Actually Cost You the Loss?
You sold a coin at a loss, bought it back an hour later, and now you’re wondering whether the IRS just disallowed that loss the way it would for a stock. For ordinary crypto, almost certainly not — but Koinly wash sale handling and your Specific Identification setup both got more complicated in 2026, for a completely different reason than you might expect.
I’m Andreas Maratheftis. I spent 30 years as a Finance Director and Group CFO before I started writing about crypto tax tools, and this is one of the few areas where the reassuring answer and the complicated answer are both true at once. For the full picture of what Koinly does well and where it falls short more broadly, my complete Koinly review covers the platform end to end.
Key Takeaways
- The wash sale rule (IRC Section 1091) does not currently apply to ordinary crypto — it applies to “stock or securities,” and the IRS treats crypto as property.
- The main exception is a digital asset that is also stock or a security for tax purposes. The Form 1099-DA instructions require Box 1i reporting when a wash sale loss applies to a tokenized security.
- Crypto ETFs like IBIT are securities, not property, and are fully subject to the wash sale rule — this is where people most often get caught out.
- IRS Notice 2026-20 extends relief through December 31, 2026, letting you use your own books and records for Specific Identification even if your broker’s systems can’t handle it yet.
- Koinly supports FIFO, LIFO, HIFO, and US-specific Optimized HIFO as selectable cost basis methods. Specific Identification is the underlying tax concept behind methods like LIFO and HIFO, not a separate button in the software — the right choice depends on your situation either way.
Quick Answer: Does Koinly Wash Sale Tracking Apply to My Crypto?
In almost all cases, no. For ordinary crypto held directly, Koinly generally does not need to apply the US stock-and-securities wash sale rule, since the wash sale rule under IRC Section 1091 applies to stocks and securities, not property. If you also own securities such as crypto ETFs or tokenized securities, their wash sale treatment may need to be reconciled separately with the tax reporting your broker provides.
What changed for 2026 is Specific Identification tracking, not wash sale exposure — IRS Notice 2026-20 extends temporary relief allowing qualifying taxpayers to make an adequate identification of broker-custodied units through their own contemporaneous books and records, rather than requiring communication of that identification to the broker.
Does the Wash Sale Rule Apply to Crypto?
The short answer to the Koinly wash sale question is no, with one specific exception that trips people up more than it should.
The Property vs. Security Distinction
The wash sale rule under IRC Section 1091 disallows a loss when you sell a stock or security and buy something substantially identical within 30 days before or after. The IRS has classified virtual currency as property since Notice 2014-21, not as a stock or security. Because Section 1091 only names stocks and securities, it doesn’t reach ordinary crypto — you can sell Bitcoin at a loss, buy it back the same day, and still claim the loss.
The One Exception: Tokenized Securities and Box 1i
Form 1099-DA includes a Box 1i for “wash sale loss disallowed,” and its presence has confused a lot of investors into thinking crypto broadly became subject to wash sale rules. It didn’t — the 1099-DA instructions specifically require Box 1i to be completed, when applicable, for transactions involving tokenized securities under the form’s own regulatory definition, not for ordinary coins and tokens.
The IRS’s own 1099-DA instructions give a worked example: a tokenized security bought for $1,000, sold for $600, then partially repurchased within 30 days, with the disallowed portion of the loss reported in Box 1i.
See how Koinly handles cost basis and wash sale tracking.
What About Crypto ETFs?
This is the practical trap in the Koinly wash sale picture. Shares of exchange-traded Bitcoin products such as IBIT are securities traded through brokerage accounts, so investors should not assume the wash sale treatment of directly held Bitcoin carries over to those shares.
If you sell an ETF share at a loss and buy it back within the 30-day window, the wash sale rule applies exactly as it would for any stock. The underlying crypto exemption doesn’t extend to a security that merely tracks crypto’s price.
Worth watching: Congress has repeatedly proposed extending wash sale rules to crypto directly, going back to the 2021 Build Back Better Act and continuing through subsequent budget proposals. None have passed. Treat the current exemption as current law, not a permanent feature — it’s a genuine tax planning gap regulators have flagged more than once.
A Separate 2026 Issue Often Confused With Wash Sales: Specific Identification
Wash sale exposure is mostly a non-issue for ordinary crypto. The 2026 change is not that wash sale rules suddenly apply to Bitcoin — the new issue is entirely separate: how investors identify which crypto units they disposed of. Spec ID tracking is where the real 2026 complexity actually sits.
What Spec ID Actually Lets You Do
Specific Identification lets you choose exactly which lot of an asset you’re selling, rather than defaulting to a fixed order like FIFO. Since January 1, 2025, cost basis tracking became mandatory on a wallet-by-wallet or account-by-account basis rather than universal across your entire portfolio — a significant change from how most investors tracked crypto before.
Rev. Proc. 2024-28 gave taxpayers a one-time safe harbor to reallocate their existing unused basis into this new wallet-based structure, provided the allocation was reasonable and properly documented.
Worth being clear about timing: this was a transition safe harbor tied to the January 1, 2025 migration itself, not a new election taxpayers can freely make in 2026 after the fact.
This safe harbor sits alongside the current wash sale treatment of ordinary crypto as one of the two rules most commonly confused with each other.
For a full walkthrough of how per-wallet cost basis works in practice, separate from the Koinly wash sale question entirely, my Koinly cost basis guide covers the mechanics in depth.
Koinly’s Cost Basis Method Options
Koinly supports FIFO, LIFO, HIFO, and a US-specific Optimized HIFO method that uses specific lot identification. It’s worth being precise here: FIFO and Specific Identification are legally distinct concepts, not interchangeable labels.
LIFO and HIFO rely on adequately identifying the units being disposed of, while FIFO can also be used but applies by default when a taxpayer hasn’t made an adequate identification for a given wallet. The key question under the IRS rules is always whether your records satisfy the identification requirements for the units actually sold — not simply which method label you selected in software. You can override your cost basis method for individual tax years if your situation changes.
IRS Notice 2026-20: What Changed for 2026
This is the part of the Koinly wash sale and Spec ID picture that’s genuinely new this year, and it’s easy to have missed if you last checked the rules in 2025.
The Books-and-Records Relief, Explained
Some custodial digital-asset brokers still cannot fully accept or process customer specific-identification instructions at the moment of each transaction. IRS Notice 2026-20 extends temporary relief — first granted in Notice 2025-7 — through December 31, 2026, allowing qualifying taxpayers to make an adequate identification of broker-custodied units through their own contemporaneous books and records, rather than requiring that identification to be communicated to the broker directly.
You can identify specific units by purchase date and price, or record a standing order in advance, as long as the records are contemporaneous and specific enough to establish basis and holding period.
Check that your Koinly records match your chosen cost basis method.
Why This Matters If Your 1099-DA Doesn’t Match Your Records
The IRS acknowledges that for 2026 transactions, the basis your broker reports may not match the lot identification on your own books. A broker’s lot treatment and your own adequate identification may genuinely differ during the relief period — Notice 2026-20 allows qualifying taxpayers to substantiate their own unit identification through contemporaneous books and records, provided the notice’s specific requirements are satisfied. That’s a meaningful protection, but it isn’t a blanket rule that your numbers automatically win any disagreement.
A complete Koinly account, with wallets connected and cost basis method selected consistently, can be an important part of that recordkeeping. But selecting HIFO, LIFO, or another method in tax software does not by itself prove that the IRS’s adequate-identification requirements were satisfied — the underlying records still need to meet the notice’s specificity and timing standard.
If you’ve previously had gains that looked wrong in Koinly, it’s worth revisiting my Koinly wrong gains guide before relying on your records under this relief — mismatched cost basis compounds quickly once you’re using Spec ID.
Cost Basis Methods at a Glance
None of these methods change Koinly wash sale exposure — they only affect how gains and losses are calculated on legitimate disposals.
| Method | How It Works | Best For |
|---|---|---|
| FIFO | First units purchased are the first units sold | Simplicity; the default in most jurisdictions |
| LIFO | Most recently purchased units are sold first | Deferring gains in a rising market, where permitted |
| HIFO | Selects the highest-cost available units first, which can reduce the realized gain on a given disposal | Reducing near-term capital gains tax, situation-dependent |
| Optimized HIFO (US only) | Uses specific lot identification to favor long-term over short-term gains | Investors who qualify for reduced long-term capital gains rates |
| Specific Identification (Spec ID) | You choose exactly which lot is sold, using your own transaction records | Maximum control, with the highest record-keeping burden |
How to Set This Up Correctly in Koinly
Getting your Koinly cost basis setup right for US reporting starts with confirming wallet-based tracking and the cost basis method you intend to use. Wash sale treatment is a separate legal question that mainly matters here if the asset itself is treated as stock or a security — there’s no dedicated Koinly wash sale setting to configure for ordinary crypto.
Choosing Your Cost Basis Method
Koinly sets a recommended default cost basis method based on your country when you sign up, but this is worth actively confirming rather than assuming. In the US, that typically means FIFO by default, with LIFO, HIFO, and Optimized HIFO available as alternatives — each relying on adequate identification in its own way. Koinly supports overriding your method for specific tax years and even migrating between methods across time periods, but the underlying IRS question for any disposal is always whether the units sold were adequately identified under the applicable rules, not simply which method label was selected in software after the fact.
Keeping Records That Survive a Mismatch
Given that broker-reported 1099-DA figures may not match your own Koinly records under the Notice 2026-20 relief, the practical task is making sure your Koinly account is the accurate, defensible version. That means every wallet connected, every transaction correctly imported, and your chosen cost basis method applied consistently across the full tax year — not adjusted retroactively once you see which number is more favorable.
One honest limitation: Koinly can apply a cost basis method consistently once you’ve chosen it, but it can’t tell you which method is actually optimal for your specific tax situation, and it can’t substitute for genuinely complete records if wallets are missing or transactions are untagged. The Koinly wash sale question and the Spec ID record-keeping question are genuinely separate problems, and only one of them is Koinly’s to solve.
The relief under Notice 2026-20 only protects records that are actually complete — an incomplete Koinly account doesn’t become defensible just because the notice exists. That distinction matters more for Spec ID than it ever did for the Koinly wash sale question itself.
What to Do Next
Open Koinly and check Settings for your current cost basis method. Confirm it matches what you actually intend to use for this tax year, rather than an old default from when you first signed up. If you’re reconciling against your broker’s 1099-DA, my Koinly Form 1099-DA guide covers what the form does and doesn’t tell you.
Then spot-check a handful of past disposals against your actual exchange records to confirm the lots Koinly identified match your intended method. This is useful reconciliation, but it’s worth being precise about what it does and doesn’t accomplish: reviewing a completed disposal today does not retroactively create an adequate Specific Identification for that sale, since Notice 2026-20 requires identification at or before the time of the transaction. For future disposals, document the specific units or standing-order methodology within the timing the notice requires — that’s the piece that actually needs to happen contemporaneously.
Frequently Asked Questions
Can I sell crypto at a loss and buy it back the same day?
For ordinary crypto held directly, yes — the current exclusion of crypto from IRC Section 1091 applies because crypto is property, not a security. This doesn’t apply to crypto ETFs or tokenized securities, which are securities and fully subject to wash sale rules. Koinly wash sale questions almost always trace back to this property-versus-security distinction.
What is Form 1099-DA Box 1i for, if crypto isn’t subject to wash sale rules?
The 1099-DA instructions require Box 1i to be completed, when applicable, specifically for transactions involving tokenized securities under the form’s regulatory definition. Its presence on the form doesn’t mean ordinary crypto became subject to wash sale rules; it’s there for a narrow category of dual-classified assets. This is the single most misread part of the whole Koinly wash sale conversation.
Does IRS Notice 2026-20 change what cost basis method I should use?
No. It changes how you can document your Spec ID choices — through your own books and records rather than broker communication — not which method is best for your situation. If you’re weighing methods for a loss-harvesting strategy specifically, my Koinly tax-loss harvesting guide covers that decision separately.
What happens if my broker’s 1099-DA doesn’t match my Koinly records?
Under the relief in Notice 2026-20, your own books and records generally control for federal tax purposes, provided they were made contemporaneously and are specific enough to establish basis and holding period. Keep documentation ready to explain any mismatch if asked.
Can I switch cost basis methods every year to minimize my tax bill?
You may be able to use different identification approaches for different dispositions or periods, provided the applicable IRS identification requirements are satisfied for each one. But changing a method in tax software after transactions have already occurred does not by itself establish a valid retroactive Specific Identification. Consult a qualified tax professional before changing your approach.
Will Congress eventually apply wash sale rules to crypto?
It’s possible. Multiple legislative proposals going back to 2021 have included provisions extending wash sale rules to digital assets, but none have passed as of this writing. Treat the current exemption as current law, not a permanent guarantee.
Final Verdict
If I had to summarise Koinly wash sale and Spec ID tracking in one sentence: the wash sale worry is mostly unfounded for ordinary crypto, but the Spec ID record-keeping bar just got both more flexible and more important at the same time. IRS Notice 2026-20 genuinely helps by letting your own records control when your broker’s systems fall short, but it doesn’t lower the standard those records need to meet.
My honest caveat: this relief rewards investors who were already keeping clean, contemporaneous records and does very little for anyone trying to reconstruct a defensible cost basis after the fact. If your Koinly wash sale questions turn out to really be Spec ID questions once you dig in, that’s normal — the two get confused constantly.
Get your Koinly cost basis records in order before filing season.
