How the Crypto Tax-Loss Harvesting Calculator works

The formula

Step by step

1. The loss offsets gains of its OWN character first — short against short, long against long — and only then crosses over. That order matters because short-term gains are taxed at ordinary rates and long-term at capital gains rates.
2. What survives that reaches ordinary income, capped at $3,000 a year. The remainder carries forward indefinitely and is reported as its own line rather than folded into the saving.
3. Each slice is valued at the rate it actually displaced: ordinary rates for short-term gains and for the income offset, long-term capital gains rates for long-term gains.
4. The new cost basis after rebuying is reported next to the saving. It is lower by exactly the loss claimed, so an eventual gain is larger by the same amount — harvesting DEFERS tax rather than erasing it, and a tool showing only the saving describes half the transaction.

Assumptions & limitations

• Reflects CURRENT law on wash sales. Section 1091 is limited by its text to stock and securities, and the IRS treats virtual currency as property, so the 30-day rule does not reach it. Extending it to digital assets has been proposed in Congress more than once — this is not permanent law.
• Models a single position rather than a whole portfolio, and does not attempt lot-level selection. Which lots you are treated as selling changes the loss; the crypto tax calculator handles that.
• Ignores transaction fees and bid-ask spread. On a real sell-and-rebuy round trip those eat into the saving, sometimes materially for illiquid tokens.
• Federal only; state treatment of capital losses varies and some states do not follow the federal carryforward.
• Assumes the loss is genuinely economic and the sale real. Nothing here addresses the economic-substance doctrine or any anti-abuse rule beyond section 1091.