nirholas Tax-Loss Harvesting
When to use this skill
Use when the user asks about:
- Reducing crypto tax obligations
- Finding unrealized losses in their portfolio
- Tax-loss harvesting strategies for crypto
- Wash sale rules and crypto (jurisdiction-dependent)
- Year-end tax planning for crypto holdings
Harvesting Framework
1. Identify Loss Positions
Scan the portfolio for unrealized losses:
- List all holdings with cost basis and current market value
- Calculate unrealized P&L for each position (current value - cost basis)
- Categorize by holding period: Short-term (held < 1 year) vs long-term (held > 1 year)
- Sort by loss magnitude: Largest absolute losses first
| Asset | Cost Basis | Current Value | Unrealized P&L | Holding Period |
|---|---|---|---|---|
| Token A | $10,000 | $6,000 | -$4,000 | 8 months (ST) |
| Token B | $5,000 | $3,500 | -$1,500 | 14 months (LT) |
2. Tax Impact Calculation
Estimate the value of harvesting each loss:
- Short-term losses offset short-term gains (taxed at ordinary income rate, up to 37% in the US)
- Long-term losses offset long-term gains (taxed at 0/15/20% depending on bracket)
- Net losses can offset up to $3,000 of ordinary income per year (US), remainder carries forward
- Calculate tax savings: Loss amount * marginal tax rate = estimated tax reduction
- Prioritize short-term losses harvested against short-term gains for maximum benefit
3. Wash Sale Considerations
Address wash sale rules (jurisdiction-dependent):
- US crypto status: As of the user's tax year, check current IRS guidance on wash sale applicability to crypto. The 2025 infrastructure bill may have changed rules.
- Traditional wash sale rule (stocks): Cannot buy back substantially identical asset within 30 days before or after the sale
- If crypto wash sales apply: Suggest waiting 31 days or swapping into a correlated but different asset
- If wash sales do NOT apply: Can sell and immediately rebuy (preserving exposure while capturing the loss)
- Other jurisdictions: Rules vary significantly — UK (30-day rule), EU, Australia, etc. Always advise consulting a local tax professional
4. Replacement Strategy
When maintaining market exposure after harvesting:
- Same asset rebuy (if wash sale doesn't apply): Sell and immediately repurchase — cost basis resets to current price
- Correlated substitute: Replace with a similar but distinct asset (e.g., sell one L1 token, buy another L1 token with similar beta)
- Index/basket approach: Replace individual position with a broader category exposure
- DeFi alternative: Move to a yield-generating position in a similar sector
- Wait period: If wash sale applies, set a calendar reminder to rebuy after the waiting period
5. Execution Plan
Step-by-step execution:
- Calculate total realized gains for the year so far
- Identify losses that offset those gains (match short-term with short-term first)
- Determine optimal harvest amount (no need to harvest more losses than you have gains + $3K)
- Execute the sell orders
- Immediately execute replacement buys (if wash sale allows)
- Record the transactions with precise timestamps and prices for tax reporting
- Update cost basis records
6. Record Keeping
Document for tax filing:
- Date and time of each sell transaction
- Exact proceeds received
- Original cost basis and acquisition date
- Net gain or loss
- Replacement purchase details (date, price, quantity)
- Running total of harvested losses for the tax year
7. Output Format
- Total unrealized losses available: Dollar amount
- Recommended harvest amount: Based on gains to offset
- Estimated tax savings: Dollar amount at user's tax bracket
- Positions to harvest: Ordered list with amounts
- Replacement strategy: For each harvested position
- Wash sale risk: Whether this applies in user's jurisdiction
- Action items: Step-by-step execution plan with timing
- Disclaimer: This is educational guidance, not tax advice. Consult a qualified tax professional for your specific situation.