Wash Sale Rules

Overview

PrivateACB includes support for the US wash sale rule (IRS §1091), which affects how cryptocurrency losses are reported for tax purposes. This guide explains what wash sales are, how PrivateACB handles them, and how to enable or disable this feature.

Default setting: Wash sale rule is disabled by default due to regulatory uncertainty.

What is a Wash Sale?

Definition

A wash sale occurs when you:

Sell a security (or cryptocurrency) at a loss, and
Buy the same or substantially identical security within 30 days before or after the sale

What Happens in a Wash Sale

When a wash sale is detected, the IRS does not allow you to claim the loss in the current tax year. Instead:

The loss is denied (you cannot deduct it from your taxes this year)
The loss is added to the cost basis of the replacement purchase
You can claim the loss later when you sell the replacement purchase

Example

Without Wash Sale Rule:

January 5: Buy 1 BTC at $50,000
February 3: Sell 1 BTC at $48,000 → Loss of $2,000 (deductible in 2024)
February 28: Buy 1 BTC at $47,000

With Wash Sale Rule Applied:

January 5: Buy 1 BTC at $50,000
February 3: Sell 1 BTC at $48,000 → Loss of $2,000 denied (not deductible in 2024)
February 28: Buy 1 BTC at $47,000
- New cost basis: $47,000 + $2,000 (denied loss) = $49,000
- The $2,000 loss will be deductible when you sell the February 28 purchase

Why this happened: The February 28 purchase was within 30 days of the February 3 sale (25 days after), triggering the wash sale rule.

The 61-Day Window

The wash sale rule looks at a 61-day window around each sale:

30 days BEFORE        Sale Date        30 days AFTER
     |                    |                    |
     v                    v                    v
  Jan 4  ←─────────→  Feb 3  ←─────────→  Mar 5

Any purchase of the same asset during this 61-day window
will trigger a wash sale if the Feb 3 sale was a loss.

Examples of Wash Sales

Sale Date	Sale Price	Purchase Date	Purchase Price	Wash Sale?	Why?
Feb 3	$48,000 (loss)	Feb 28	$47,000	YES	Purchase within 30 days after
Feb 3	$48,000 (loss)	Jan 15	$46,000	YES	Purchase within 30 days before
Feb 3	$48,000 (loss)	Mar 10	$45,000	NO	Purchase more than 30 days after (35 days)
Feb 3	$52,000 (gain)	Feb 28	$47,000	NO	Sale was a gain, not a loss

How PrivateACB Detects Wash Sales

Automatic Detection

When you run an ACB calculation with wash sales enabled, PrivateACB:

Examines every sale transaction
Checks if it resulted in a loss (proceeds less than cost basis)
Searches for replacement purchases within the 61-day window
If found, applies the wash sale rule:
- Denies 100% of the loss
- Adjusts the cost basis of the replacement purchase
- Records the wash sale in your database
- Marks the capital gain record as “wash sale applied”

Where You’ll See Wash Sales

After running a calculation with wash sales enabled, you can find wash sale information in several places:

1. Job Display Name

All calculation jobs now show wash sale status in their display name:

Example with wash sales ON:

BTC United States FIFO (WS: ON, 3 detected) - Nov 11, 2025

Example with wash sales OFF:

BTC United States FIFO - Nov 11, 2025

This lets you instantly see which calculations used wash sales and how many were detected.

2. Calculation Dashboard Config Bar

When setting up a US calculation with wash sales enabled, the Config Bar (Zone A) shows your jurisdiction, method, and tax year. The Rules Banner (Zone B) confirms wash sale status before you start the calculation.

3. Calculation History (Zone D)

Wash Sale Results

After a successful calculation, the Calculation History table at the bottom of the dashboard shows financial results for each job, including wash sale detection counts and deferred loss amounts.

4. Capital Gains Table (Database)

Each capital gain record has a wash_sale_applied column:

0 = No wash sale (loss is deductible)
1 = Wash sale applied (loss was denied)

If a record has wash_sale_applied = 1, the capital_gain column will show 0.0 instead of the negative loss amount.

5. Wash Sales Table (Database)

The wash_sales table contains detailed information about each wash sale:

Original disposal date and loss amount
Replacement purchase date and record ID
Basis adjustment amount
Asset symbol

6. Tax Lot Basis Adjustment

The replacement purchase’s tax lot will have an increased cost basis equal to the denied loss. This ensures the loss is preserved for when you eventually sell the replacement.

Enabling or Disabling Wash Sales

Step-by-Step Instructions

Open PrivateACB and load your database
Navigate to the Settings tab (Ctrl+7)
Find the “US Wash Sale Rule” section
Toggle the switch to turn wash sales ON or OFF
- OFF (default): Wash sale rule will NOT be applied to calculations
- ON: Wash sale rule WILL be applied to all future US calculations

What Happens When You Change the Setting

The setting is saved immediately (with a 1-second delay to avoid multiple saves).

Enable or disable wash sales in Settings (Ctrl+7)
Navigate to the ACB Calculator tab (Ctrl+4)
Select United States jurisdiction in the Config Bar
Select your calculation method (FIFO, LIFO, or HIFO)
Select your asset(s) in the Asset Table
Click “Calculate” to run a new calculation

The new calculation will use the updated wash sale setting.

Checking Current Setting

To verify whether wash sales are currently enabled:

Open the Settings tab (Ctrl+7)
Look for “US Wash Sale Rule”
Check the toggle switch:
- Blue/highlighted = Wash sales are ON
- Gray/unhighlighted = Wash sales are OFF

When to Use Wash Sales

Consider Enabling If:

✅ You are conservative with tax reporting and want to apply IRS rules even if unclear
✅ Your tax advisor recommends treating cryptocurrency as a security for wash sale purposes
✅ You want to see the impact of wash sales on your tax liability (you can compare calculations with it on vs. off)
✅ You frequently trade the same cryptocurrency (buy and sell within short timeframes)

Consider Disabling If:

✅ You believe cryptocurrency does not qualify as a security under IRC §1091
✅ Your tax advisor recommends NOT applying wash sales to cryptocurrency
✅ You want to claim all losses in the current tax year
✅ You rarely or never repurchase the same cryptocurrency within 30 days of a sale

Regulatory Uncertainty

As of 2025, the IRS has not issued clear guidance on whether wash sale rules apply to cryptocurrency. Some facts to consider:

Arguments FOR applying wash sales to crypto:

Some tax professionals recommend conservative treatment
Future IRS guidance may require it retroactively
Crypto may be considered “substantially similar” to traditional securities

Arguments AGAINST applying wash sales to crypto:

IRC §1091 specifically mentions “stocks or securities,” not property or commodities
IRS has historically treated cryptocurrency as property (like real estate), not securities
No official IRS publication confirms wash sales apply to crypto

PrivateACB’s Position: We provide the feature as an option but default to disabled. You should consult with a qualified tax professional to determine the appropriate treatment for your situation.

Comparing Calculations With and Without Wash Sales

Strategy: Run Calculations Both Ways

You can run two separate calculations to see the difference:

First calculation: Wash sales OFF
- Go to Settings (Ctrl+7) → Turn wash sales OFF
- Go to ACB Calculator (Ctrl+4) → Calculate your asset (e.g., BTC FIFO)
- Note the total capital gains/losses
Second calculation: Wash sales ON
- Go to Settings (Ctrl+7) → Turn wash sales ON
- Go to ACB Calculator (Ctrl+4) → Calculate your asset again (BTC FIFO)
- Note the new total capital gains/losses
Compare the results:
- If wash sales ON shows higher gains (or lower losses), that’s the deferred loss amount
- Check the Calculation History (Zone D) to see exactly how much loss was deferred

Example Comparison

Scenario: You sold Bitcoin 10 times in 2024, with 3 sales resulting in losses totaling $6,500.

Setting	Total Capital Gains	Explanation
Wash sales OFF	$12,000	All losses are deductible
Wash sales ON	$16,200	$4,200 in losses denied due to wash sales

In this example, 3 of your loss sales triggered wash sales, and $4,200 of the $6,500 total losses were denied (the other $2,300 in losses did not have replacement purchases within 61 days).

Impact on Different Calculation Methods

FIFO (First In, First Out)

FIFO selects the oldest lots first when you sell. This method:

Often results in more gains (if prices have risen over time)
May produce fewer wash sales because older lots tend to have lower cost bases
Example: If you bought BTC at $30K (2022) and $60K (2024), selling in 2024 will use the $30K lot first (likely a gain, not a loss)

LIFO (Last In, First Out)

LIFO selects the newest lots first when you sell. This method:

Often results in more losses (if prices have fallen recently)
May produce more wash sales because recent purchases create losses, and you may repurchase shortly after
Example: If you bought BTC at $60K (January) and sold at $50K (February), then bought again at $48K (March), LIFO will trigger a wash sale

HIFO (Highest In, First Out)

HIFO selects the highest cost basis lots first. This method:

Minimizes gains (or maximizes losses) for tax optimization
Often produces the most wash sales because it deliberately creates losses by selling high-cost lots
Example: If you bought BTC at $40K, $50K, and $60K, selling at $55K will use the $60K lot first (creating a $5K loss that may trigger a wash sale)

Key Insight

Wash sales are ONLY triggered by losses. If your calculation method produces only gains (no losses), you will have zero wash sales even with the rule enabled.

In your own testing, you may have noticed:

FIFO with wash sales ON → 0 wash sales detected
LIFO with wash sales ON → 3 wash sales detected
HIFO with wash sales ON → 3 wash sales detected

This is because FIFO produced no losses with your transaction data (all sells were at a gain), while LIFO and HIFO produced losses by selecting different lots.

Frequently Asked Questions

Q: Does enabling wash sales change which lots are selected?

A: No. The wash sale rule does not affect lot selection. FIFO still selects oldest lots first, LIFO selects newest lots first, and HIFO selects highest-cost lots first. Wash sales only affect how losses are reported, not which lots are sold.

Q: If I enable wash sales, will it recalculate all my old jobs?

A: No. Changing the wash sale setting does not automatically recalculate existing jobs. You must manually run new calculations after changing the setting.

Q: Can I have some calculations with wash sales and some without?

A: Not currently. The wash sale setting is global and applies to all US calculations. However, you can run multiple calculations at different times with different settings (e.g., calculate BTC with wash sales OFF, then change the setting and calculate BTC again with wash sales ON). Both calculation results are saved separately in your database.

Q: What if I enable wash sales midway through the year?

A: You should recalculate. If you ran calculations earlier in the year with wash sales OFF, then later decide to enable them, you should re-run your calculations to get accurate results. Old calculations will not be updated.

Q: Does the wash sale rule apply to Canadian calculations?

A: No. The wash sale rule is a US-only rule (IRS §1091). Canada has a similar rule called the “superficial loss rule,” which is always enabled and cannot be disabled (it’s mandatory under Canadian tax law). PrivateACB automatically applies the superficial loss rule to all Canadian ACB calculations.

Q: How do I see which specific transactions triggered wash sales?

A: Check the database tables. You can view:

Wash Sales table - Shows each wash sale with disposal date, replacement date, and loss amount
Capital Gains table - Look for wash_sale_applied = 1 to see which sales were affected
Tax Lots table - Replacement lots will have increased total_cost due to basis adjustment

Alternatively, export a US Tax Audit Report, which includes detailed wash sale information.

Q: Can I claim the deferred loss in a future year?

A: Yes, eventually. The deferred loss is added to the cost basis of the replacement purchase. When you sell that replacement purchase (even if it’s years later), the deferred loss will effectively reduce your gain (or increase your loss) at that time. This is handled automatically by PrivateACB’s lot tracking system.

Q: What happens if I sell the replacement purchase at a loss within 30 days of buying it again?

A: Another wash sale. Wash sales can chain indefinitely if you keep selling at a loss and repurchasing within 30 days. Each time, the loss is deferred and added to the next replacement lot’s basis. You’ll only realize the accumulated losses when you either:

Sell without repurchasing within 30 days, or
Hold the replacement lot past the 30-day window

Technical Details

Wash Sale Window Calculation

PrivateACB calculates the 61-day window as:

Start: 30 days before the sale date (at 00:00:00)
End: 30 days after the sale date (at 23:59:59)
Includes: The sale date itself

Example:

Sale date: February 3, 2024
Window start: January 4, 2024, 00:00:00
Window end: March 4, 2024, 23:59:59
Total: 61 days

Substantially Identical Securities

For cryptocurrency, PrivateACB considers assets “substantially identical” if they have the same asset symbol. For example:

Selling BTC and buying BTC = substantially identical (wash sale possible)
Selling BTC and buying ETH = NOT substantially identical (no wash sale)

Basis Adjustment Method

When a wash sale is detected, PrivateACB:

Sets the capital gain to $0 (denying the full loss)
Identifies the first replacement purchase in the 61-day window
Adds the denied loss amount to that purchase’s tax lot cost basis
Records the adjustment in the wash sale record

If there are multiple replacement purchases, only the first one (earliest date) receives the basis adjustment.

Reporting Wash Sales to the IRS

Form 8949

Wash sales must be reported on IRS Form 8949 (Sales and Other Dispositions of Capital Assets). PrivateACB’s Form 8949 export includes:

All capital gain/loss transactions
Wash sale adjustments in the appropriate columns
Adjusted cost basis for sales affected by wash sales
Code “W” in the adjustment column (if applicable)

Schedule D

Totals from Form 8949 flow to Schedule D (Capital Gains and Losses). Wash sales reduce your net capital loss for the year but preserve the loss for future years through basis adjustments.

Audit Provenance

PrivateACB maintains a complete audit provenance record of wash sales:

Original loss amounts
Denied loss amounts
Replacement purchase dates and IDs
Basis adjustment amounts
Timestamps of when wash sales were detected

You can export this information using the US Tax Audit Report feature for IRS documentation.

Best Practices

1. Decide Early in the Tax Year

Determine whether you’ll apply wash sales before making trades or running calculations. This ensures consistency throughout the year.

2. Consult a Tax Professional

Given the regulatory uncertainty, consult with a CPA or tax attorney who specializes in cryptocurrency taxation before enabling wash sales.

3. Keep Records

Export your wash sale reports and save them with your tax records. If the IRS ever issues guidance requiring wash sales on crypto, you’ll have documentation showing you applied the rules conservatively.

4. Test Both Scenarios

Run calculations with wash sales both ON and OFF to understand the impact on your tax liability. This helps you make an informed decision about which approach to use.

5. Document Your Position

If you choose NOT to apply wash sales to cryptocurrency, document your reasoning (e.g., “Cryptocurrency is property, not a security, per IRS Notice 2014-21”). This shows due diligence if questioned by the IRS.

IRS Publication 550 - Investment Income and Expenses (Wash Sale Rule)
IRC §1091 - Loss from Wash Sales of Stock or Securities
IRS Notice 2014-21 - Virtual Currency Guidance (treats crypto as property)
PrivateACB Settings Tab (Ctrl+7) - Where you enable/disable wash sales
PrivateACB ACB Calculator Tab (Ctrl+4) - Where you run calculations
PrivateACB Reports Tab (Ctrl+5) - Export Form 8949 and US Tax Audit Report

Summary

Key Takeaways:

Wash sale rule is OPTIONAL - Disabled by default due to regulatory uncertainty
Only affects LOSSES - Gains are not affected by wash sales
61-day window - 30 days before + sale date + 30 days after
Loss is deferred, not lost - Added to replacement purchase basis
Enable in Settings - Takes effect for all future calculations
Recalculate to apply - Old calculations are not automatically updated
Consult a professional - Tax advisor should guide your decision

Quick Guide:

To enable: Settings (Ctrl+7) → US Wash Sale Rule → Toggle ON → Calculate
To disable: Settings (Ctrl+7) → US Wash Sale Rule → Toggle OFF → Calculate
To compare: Run calculations with both settings and compare results

Last Updated: February 2026 Applies to: PrivateACB 2.0 Jurisdiction: United States only IRS Code: §1091

Need Help?

If you have questions about wash sales or how PrivateACB handles them:

Review this guide thoroughly
Check the Settings tab (Ctrl+7) to verify your current wash sale setting
Run test calculations with a small dataset to see how wash sales affect results
Consult with a qualified tax professional about your specific situation
Export the US Tax Audit Report to see detailed wash sale information

Last Updated: February 2026 PrivateACB Version: 2.0