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Author: Admin | 2025-04-28
Loss on the 100 shares of AAPL and uses it to offset her capital gains, lowering her overall gains from $12,000 to $9,000, which is correct since the wash-sale rule applies. Her loss of $3,000 is disallowed for tax purposes.The cost basis of Sarah's new 100 shares of AAPL is adjusted to reflect the disallowed loss. So, her adjusted cost basis for the new shares is $7,500 - $3,000 = $4,500.If Sarah decides later to sell the new shares of AAPL for a gain, the adjusted cost basis of $4,500 is used to calculate the taxable gain.The IRS does have a wash sale rule. The US wash sale rule occurs when an individual investor sells or trades an asset at a loss and buys back a "substantially identical" asset within 30 days. If an investor does this - they cannot claim a capital loss.But, the US wash sale rule currently only applies to assets that are classified as securities - like stocks, bonds, and other financial instruments. So for example, if you purchased GME stock, sold it at a loss, and then repurchased it, you wouldn't be able to claim this as a capital loss because of the IRS wash sale rule.The majority of cryptocurrencies aren’t classified as securities by the IRS, it’s classified as property. So right now, the IRS wash sale rule doesn’t apply to crypto.This said - the wash sale rule will apply to crypto-related securities like stocks in exchanges.Before you rejoice - this is potentially going to change in the near future. In March 2023, Biden's proposed a series of tax reforms for crypto in the Federal Budget, one of which was including crypto in the wash sale rule. It's estimated more than $24 billion could be raised from this change. However, as the administration has now changed - and the new administration looks set on keeping remaining tax loopholes - whether this goes ahead remains to be seen.And a further word of warning, you need to consider the economic substance test. This common law doctrine denies tax deductions when the related transaction lacks an underlying economic purpose. In other words, if you're seen to be deliberately selling assets for the singular purpose of tax loss harvesting, then you're not conducting the transaction for a meaningful or substantial economic purpose. As such, there is the potential risk that these losses would not be deductible against gains.Given
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