Crypto Has a Billion-Dollar Tax Loophole — and Congress Just Found Rare Bipartisan Agreement to Kill It

A bipartisan effort is building in Congress to close a tax advantage that crypto investors have used for years — one that the Treasury Department estimated could be worth nearly $24 billion over a decade if eliminated. 

According to CNBC, the target is the absence of wash sale rules for digital assets, a gap in the tax code that allows crypto holders to claim losses for tax purposes without actually changing their investment positions.

The Tax Rule That Applies to Stocks but Not Crypto 

The concept behind the loophole is that when an investor sells an asset at a loss, they can use that loss to offset capital gains elsewhere in their portfolio — reducing the taxes owed on profitable investments. 

If losses exceed gains, up to $3,000 can be deducted from regular income, with the remaining losses carried over to future years. This strategy, called tax-loss harvesting, is a standard tool used by financial advisers and accountants across the country.

For stocks and bonds, federal rules known as wash sale rules put a limit on this strategy. Those rules prevent investors from selling an asset at a loss and then buying back the same or a substantially similar asset within 30 days before or after the sale while still claiming the tax benefit. 

The rules do not stop investors from making the transaction — they just block the tax deduction that would otherwise follow. However, crypto is not subject to those rules. 

The reason is historical — the federal government treats digital assets as property rather than securities, and wash sale rules were written decades before cryptocurrency existed. 

That classification means a Bitcoin (BTC) holder can sell at a loss, immediately repurchase the same amount of BTC, and still claim the full tax benefit of the loss — all without any meaningful change to their portfolio.

Republicans Are Now Behind the Fix

Troy Lewis, a certified public accountant and accounting professor at Brigham Young University, described the gap, saying, “There’s this big hole, and people are going to drive a truck through it,” he told CNBC. 

The advantage has been widely used by crypto investors, he said, and its relevance has grown as Bitcoin and other digital assets have fallen sharply in value — Bitcoin has lost roughly half its value since October 2025, leaving many investors sitting on losses they can now harvest.

Republican Representative Jodey Arrington of Texas introduced legislation in June — the Applying Existing Tax Anti-Abuse Rules to Digital Assets Act — that would close the gap by bringing crypto under the same wash sale framework that governs traditional securities. 

Colin Wilhelm, manager of tax legislative affairs at Grant Thornton, described it as significant that this push is now coming from Republican lawmakers, as the concept has drawn support from other Republicans as well. 

Representative Ron Estes of Kansas said at a House Ways and Means Committee hearing in June that extending wash sale rules to digital assets would bring consistency and clarity to investors and traders rather than treating crypto better or worse than comparable financial assets.

Still, not all crypto investors are exposed to the current loophole. Those who hold Bitcoin or Ethereum (ETH) through exchange-traded funds (ETFs) rather than directly are already subject to wash sale rules, since ETFs are classified as securities. 

Direct holders of crypto property are the ones currently benefiting — and the ones who would be most affected if Congress closes the gap.

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