Short answer: tax-loss harvesting means selling an investment that is worth less than you paid, before December 31, 2026, so the loss cancels out gains you already took this year — and, if losses are left over, up to $3,000 of your salary, with the rest carried into future years. In 2026 there is a lot to harvest: bitcoin closed at $77,643 on November 1, about 38% below its October 2025 record and 20% below where it started January, and plenty of stocks bought near their 2026 highs are under water too.
There is one rule that makes crypto different from stocks this year, one trap that makes most harvests smaller than they look, and one cost people forget. Here is all of it, with a worked example in dollars.
Who this is for: US taxpayers with a taxable brokerage or crypto account (not a 401(k) or IRA — losses inside those accounts do not count). What it does not cover: state tax, futures and options (section 1256 contracts have their own 60/40 rule), and business returns. Tax rules can change before year-end; nothing here is tax advice.
How it worksNetting, in the order the IRS applies it
Sort by holding period
Short-term = held one year or less, taxed like salary. Long-term = held more than a year, taxed at 0%, 15% or 20%.
Net within each group
Short-term losses against short-term gains; long-term losses against long-term gains.
Net across groups
A net loss in one group then reduces a net gain in the other — a short-term loss can wipe out a long-term gain, and vice versa.
Use up to $3,000 against income
If the total is still a loss, up to $3,000 ($1,500 married filing separately) comes off ordinary income. The rest carries forward to 2027 and later, indefinitely, keeping its short- or long-term character.
The order matters for value. A short-term loss is worth the most when it offsets a short-term gain or salary — taxed at your bracket (22% or 24% for most earners) — and the least when it offsets a long-term gain that would have been taxed at 15% or even 0%.
ExampleHarvesting a 2026 bitcoin loss
Alex is single, with about $95,000 of taxable income — the 22% bracket in 2026, and 15% on long-term gains (the 0% rate stops at $49,450 for single filers, the 15% rate runs to $545,500). In May Alex sold shares held for three years at an $8,000 long-term gain. In January Alex bought 0.25 BTC at $96,929 — bitcoin's 2026 high.
Long-term gain on the shares
- Don't harvest
- $8,000
- Harvest
- $8,000
Short-term loss on the bitcoin
- Don't harvest
- — (unrealized)
- Harvest
- −$4,821.46
Net taxable gain
- Don't harvest
- $8,000
- Harvest
- $3,178.54
Federal tax at 15%
- Don't harvest
- $1,200.00
- Harvest
- $476.78
Saved this year
- Don't harvest
- —
- Harvest
- $723.22
| Don't harvest | Harvest | |
|---|---|---|
| Long-term gain on the shares | $8,000 | $8,000 |
| Short-term loss on the bitcoin | — (unrealized) | −$4,821.46 |
| Net taxable gain | $8,000 | $3,178.54 |
| Federal tax at 15% | $1,200.00 | $476.78 |
| Saved this year | — | $723.22 |
Source: CalculatorAI · calculatorai.app · BTC-USD closes, Yahoo Finance · 2026 brackets from IRS Rev. Proc. 2025-32 · drafts/tax-loss-harvesting-2026-numbers.mjs
The loss is short-term (held under a year), but with no short-term gains to absorb it, it crosses over and offsets the long-term gain — at the 15% rate, not 22%. Had Alex sold nothing at a gain, the same loss would have taken $3,000 off salary (worth $660 at 22%) and carried $1,821.46 forward to 2027.
Because the wash sale rule does not cover directly held crypto, Alex can buy the 0.25 BTC back right away and keep the position. With a stock or an ETF, that same-day buyback would cancel the loss.
The wash sale ruleStocks yes, crypto (still) no
30 days before and after
Buy the same or a substantially identical security within 30 days on either side of the sale and the loss is disallowed — it is added to the new shares' cost basis instead. Purchases in your IRA, your spouse's accounts and automatic dividend reinvestment all count.
No waiting period — for now
Section 1091 covers stocks and securities; the IRS treats crypto as property. You can sell at a loss and rebuy immediately. Several bills would extend the rule to digital assets; as of November 1, 2026, none has been enacted.
Two cautions on the crypto side:
- The sale must be real. Moving coins between your own wallets is not a sale; a transfer labeled as a sale by tax software creates no deductible loss. Sell on the exchange, at a market price, and keep the record.
- Watch the bills. If Congress extends the wash sale rule to digital assets, the effective date matters. Harvesting earlier in November rather than on December 30 leaves less exposure to a last-minute change.
For stocks, the standard workaround is to swap into something similar but not identical for 31 days — an S&P 500 fund for a total market fund, one company's shares for a sector ETF. Our comparisons of VOO vs VTI and SPY vs VOO vs IVV show how close those pairs are; funds tracking the same index from different issuers are a grey zone, so many investors pick a different index to stay clear.
The costHarvesting defers, it does not erase
When Alex rebuys the bitcoin at $77,643, the new cost basis is $19,410.87 instead of $24,232.33. If bitcoin later returns to $100,000 and Alex sells, the gain is $5,589 instead of $768 — larger by exactly the $4,821 harvested. The tax was moved, not cancelled.
That trade is still usually worth making, for three reasons:
Rate arbitrage
A loss used at 22% against salary, and a gain taxed later at 15% (or 0% in a low-income year), is a permanent saving.
Time value
Tax paid in 2035 instead of 2026 is money invested in the meantime. Our compound interest calculator shows what $723 is worth after a decade.
Step-up at death
Assets held until death get a new basis at their value then, so the deferred gain may never be taxed at all.
It is not worth it when the loss is small next to the trading costs and the bookkeeping, or when you expect a much higher tax rate when you eventually sell.
Before December 31The year-end checklist
Pull this year's realized gains
Your broker's year-to-date realized gain/loss page, plus every crypto exchange. You can only offset what you know about.
List positions below cost — by lot
If you bought the same asset several times, choose which lots to sell. Selling the highest-cost lot first (HIFO, or 'specific identification') realizes the biggest loss; tell the broker before the trade settles.
Check the 30-day windows for stocks
No purchases of the same security from 30 days before to 30 days after — including dividend reinvestment and your IRA. Turn off DRIP on that holding first.
Trade by the last business day
The trade date, not the settlement date, decides the tax year. December 31, 2026 is a Thursday.
Keep the paper trail
From 2026, brokers report cost basis on Form 1099-DA for many crypto sales; gross proceeds were reported from 2025. Match their numbers to yours before you file.
Doing this by hand across a brokerage account and two exchanges is where most people give up. The Portfolio Tracker keeps every buy as a separate lot, shows unrealized gain or loss per position across accounts and wallets, and its tax report matches each sale to lots by the method you choose — FIFO, LIFO or HIFO — so you can see before you sell which lots produce the loss. The capital gains calculator shows the tax on a single sale, and the crypto P&L calculator does the same for one coin.
If this year's market made you rethink the bigger picture rather than one position, our guide to what the midterm elections mean for the stock market covers rebalancing before year-end.
Where these numbers come from
- Bitcoin prices: BTC-USD daily closes from Yahoo Finance, downloaded November 1, 2026: 2026 high $96,929.33 (January 14), December 31, 2025 $87,508.83, November 1, 2026 $77,643.46. The all-time high was about $124,750 at the daily close on October 6, 2025 (around $126,000 intraday).
- 2026 brackets: ordinary income from IRS Rev. Proc. 2025-32 as stored in our tax tables (single 22% band $50,400–$105,700); long-term capital gains 0% to $49,450 and 15% to $545,500 for single filers, per the same procedure as reported by Kiplinger.
- Rules: the $3,000 limit and carryforward (IRC §1211 and §1212), the wash sale rule (IRC §1091), crypto as property and Form 1099-DA timing from the IRS digital assets page. Legislative status from a review of tax-practice sources dated October 2026, including Gordon Law.
- Arithmetic is in
drafts/tax-loss-harvesting-2026-numbers.mjs, which asserts the $4,821.46 loss, the $723.22 saving and that the later gain grows by exactly the harvested loss. - Limits: federal tax only; ignores the 3.8% net investment income tax (above $200,000 single / $250,000 joint), state tax and trading fees; Alex is illustrative.
FAQFrequently asked questions
What is the deadline for tax-loss harvesting in 2026?
The trade must be executed by Thursday, December 31, 2026 — for stocks that is the last trading day of the year, and crypto trades every day. The trade date counts, not settlement.
Does the wash sale rule apply to crypto in 2026?
Not to coins held directly: the IRS treats them as property, and section 1091 covers stocks and securities. It does apply to crypto ETFs and other securities. Bills to extend it to digital assets have been introduced but none had passed as of November 1, 2026.
How much of a capital loss can I deduct?
Without limit against capital gains. Beyond your gains, up to $3,000 a year against ordinary income ($1,500 if married filing separately); the rest carries forward to future years with no expiry.
Can I harvest losses in my 401(k) or IRA?
No. Gains and losses inside tax-advantaged accounts are not reported, so there is nothing to deduct. Buying the same security in an IRA within 30 days of selling it at a loss in a taxable account also triggers the wash sale rule — and that loss is lost for good.
Is tax-loss harvesting worth it for small amounts?
At a 22% bracket every $1,000 of loss used against salary is worth $220, so even small positions add up. It stops being worth it when fees, spreads or a missed rebound outweigh the saving.
Does harvesting a loss mean I lose the investment?
No. With crypto you can rebuy immediately; with stocks, either wait 31 days or move into a similar but not substantially identical fund in the meantime.
The takeawayUse the bad year
A down year for one holding is not wasted if you book the loss before December 31. Find your realized gains, match them against positions under water lot by lot, mind the 30-day window on stocks — and track the lots in one place with the Portfolio Tracker so next year's harvest takes minutes, not an evening.
