Holding onto cryptocurrency can help reduce tax liability from capital gains. This is the underlying premise of the tax-loss harvesting strategy. While this has already been discussed earlier, there are certain risks that the taxpayer must be aware of.
Risks Involved in Tax-loss Harvesting
While tax loss harvesting is allowed, it is not without its own share of risks. For instance, as a crypto trader, one must be vigilant to avoid any ‘wash sale’ possibilities. According to the IRS, a trader cannot claim a loss on the sale of particular security if it is bought back within a 30-day period.
Therefore, it is recommended to wait at least 30 days before venturing into a buyback of cryptocurrency after recognizing a loss on the same.