What is 'tax-loss harvesting'?
Tax-loss harvesting is a tax planning strategy that allows individuals to reduce their taxable income by selling assets at a loss before the end of the tax year.
How does tax-loss harvesting work?
A capital gain is the profit made when selling an asset, calculated as the difference between the cost basis (the purchase price) and the proceeds (the sale price). If the sale price is lower than the cost basis, the investor incurs a capital loss.
Proceeds − Cost Basis = Capital Gain/Loss
For example, if an investor sells a crypto holding bought for $25,000 for $28,000, they realize a $3,000 capital gain, which is taxable in that year. If they sell the same holding for $23,000, they incur a $3,000 capital loss.
Tax-loss harvesting involves selling other investments at a loss to offset these gains. For instance, if the same investor sells another asset bought for $30,000 for $25,000, they can "harvest" a $5,000 capital loss to offset gains.
For more information about tax loss harvesting and how it affects crypto taxes, wash-sale rules, and other important considerations, refer to the Crypto Tax Loss Harvesting Guide.
When do I harvest tax losses?
Anytime that the market value of your asset drops beneath its cost basis, there is an opportunity to tax loss harvest.
Tax-loss harvesting must be done before the end of the tax year, which in the United States is December 31. For instance, to save money on your 2024 taxes when you pay your tax bill in 2025, you must sell assets at a loss between January 1, 2024 and December 31, 2024.
How do I use CoinTracker to claim tax losses?
While you cannot directly harvest tax losses through CoinTracker, we offer a Tax-Loss Harvesting tool for Prime and Ultra plans which can help you decide which assets to sell.
Using the Tax-Loss Harvesting Tool in CoinTracker
The Tax-Loss Harvesting tool provides information on:
- Which assets to consider for tax loss harvesting
- The wallet holding the asset
- The amount to consider selling
- Estimated maximum harvestable loss
You can sort assets based on coin, wallet, amount to sell, market value, cost basis, or max harvestable loss.
Ensure Accuracy of the Max Harvestable Loss Calculation
The accuracy of the Max Harvestable Loss calculation depends on having an accurate account. Review your account for accuracy before using the tool: Account Accuracy Checklist
The numbers in the Tax-Loss Harvesting tool are affected by your cost basis method and cost basis tracking settings, so verify these settings are correct before using the tool.
How to Tax-Loss Harvest
- Identify Crypto Assets: Determine which assets you hold at a harvestable loss.
- Sell the Assets: Sell the amount of the asset for fiat, a stablecoin, or another cryptocurrency.
- Repurchase the Assets: If you wish to maintain your portfolio composition, repurchase the same amount of the asset.
- Transfer Assets: Move the assets back to the wallets for long-term holding.
- Sync Your Dashboard: Update your CoinTracker dashboard from the Wallets page.
- Review Transactions: Check the tax-loss transactions on the Transaction page to verify the Gains column.
These steps are an example of how someone could use the Tax-Loss Harvesting tool to tax-loss harvest, is informational only, and is not meant as tax advice. For tax advice please speak with a tax professional. See our full disclaimer.