What a crypto loss is worth on a US return
Picture a token that cost $15,000 and is now quoted at $5,000. Until it’s sold, nothing happens for tax. The sale turns the drop into a $10,000 capital loss, and the IRS lets that loss soak up capital gains from the same year before anything else.
IRS Topic 409 caps what’s left. Up to $3,000 can come off ordinary income each year ($1,500 for a married person filing separately), and the rest carries forward.
A holder with no gains at all deducts $3,000 now. In a simple case the remaining $7,000 rolls on through the carryover lines on Schedule D until later gains, or the $3,000 allowance in later years, use it up.
Timing is literal. Answer 42 of the IRS virtual currency FAQ ties a sale to “the taxable year of the transaction,” so December 31 and January 2 sit a year apart on the return.
The buy-back question
The trick only works if the loss is allowed. With shares, buying substantially identical stock within 30 days before or after the sale makes it a wash sale and blocks the loss.
Most crypto sits outside that net. The 2025 Schedule D instructions say the wash sale rules generally reach digital assets only when they are also stock or securities for tax purposes, which the IRS calls tokenized securities.
Exchange Kraken says the same thing more plainly in its 2025 form guide, where digital assets “are not currently classified as securities for wash sale purposes.” It also warns that the rules could change. Form 1099-DA already has a box for the case, since box 1i reports a disallowed wash sale loss, where one on a tokenized security would appear.
A UK loss works differently
Britain matches a sale to any tokens of the same type bought in the next 30 days, according to HMRC’s Cryptoassets Manual, so a quick buy-back changes which cost the sale is measured against.
Losses also have to be claimed. HMRC’s losses page gives a seller 4 years from the end of the tax year in which the tokens were sold to make the claim. Losses from earlier years are used only to bring gains down to the tax-free allowance, with anything left carried on again.
Selling the wrong units
One slip is mechanical. A holder sells part of a position to book a loss, the exchange’s default method picks the oldest units, and if those were the cheap ones the sale shows a gain instead. Under FIFO, units not identified at the time of sale count as the earliest ones bought.
Kraken’s guide says an identification has to be made by the time of the sale, and afterwards “FIFO generally applies by default.” Checking which units a sale will use has to happen before the order goes in.
General information about the term; not tax advice.