Crypto Tax-Loss Harvesting: How to Reduce Your Tax Bill in 2026

Bitcoin (CRYPTO: BTC) is rallying again. But for some crypto holders, the recent rebound has not erased the losses sitting in their portfolios.

Bitcoin climbed nearly 25% over the past seven days, briefly reaching about $79,463 before settling near $77,400.

The move came as more than $4.3 billion in bearish crypto positions were liquidated, and spot Bitcoin ETFs attracted roughly $1.61 billion in weekly inflows.

Ethereum (CRYPTO: ETH) and other major cryptocurrencies also joined the rally. While this brought relief for investors, it also creates a tax question for those who bought during earlier market highs:

What should you do with a crypto position that is still underwater?

One answer may be tax-loss harvesting. The strategy allows investors to sell an investment below its tax basis, realize the loss, and use it to offset capital gains.

If losses exceed gains, individuals can generally deduct up to $3,000 of net capital losses against ordinary income each year, with unused losses generally carried forward.

But crypto tax-loss harvesting comes with an important warning.

There is no general IRS 72-hour rule that gives investors a tax-free window to sell cryptocurrency at a loss and buy it back three days later.