crypto education wash sale rule Jul 09, 2026

Coinbase Told Congress the Crypto Wash Sale Rule Is Coming. Here's What It Means for Your Taxes.

By Clinton Donnelly, LLM, EA | CEO & Founder, CryptoTaxAudit

On June 9th, 2026, Coinbase's top tax executive sat in front of the House Ways and Means Committee and told lawmakers the crypto wash sale rule should apply to digital assets. That testimony matters. Coinbase is the largest U.S. exchange, and when its VP of Tax says a rule is coming, traders should pay attention.

The hearing covered six standalone crypto tax bills. They touch stablecoins, small transactions, mining, staking, broker reporting, and the wash sale rule. Each one changes how everyday crypto users calculate and report their taxes.

This post breaks down what Lawrence Zlatkin told Congress, what each proposal actually does, and where CryptoTaxAudit agrees and disagrees with the direction Washington is heading.

Key Takeaways:

Coinbase supports applying the wash sale rule to crypto. Lawrence Zlatkin, VP of Tax at Coinbase, told the House Ways and Means Committee on June 9, 2026 that the rule should apply, but only as part of a broader package with an 18 to 24 month implementation runway.

Crypto has no wash sale rule today. Section 1091 covers "stocks and securities." The IRS treats crypto as property, so the 30-day repurchase restriction does not currently apply to digital assets.

The wash sale rule is hard to enforce across exchanges. Losses harvested on one platform and repurchased on another are not flagged on either 1099. That is why the firm views the rule as a penalty on uninformed traders, not sophisticated ones.

A $300 de minimis exemption does not remove the tracking burden. Senator Lummis's bill would exempt gains under $300 per transaction with a $5,000 annual cap. Taxpayers would still have to track every transaction to prove they qualify.

Staking rewards are taxed at receipt. Revenue Ruling 2023-14 taxes rewards at fair market value when the taxpayer gains dominion and control. Paschall v. Commissioner upheld this for staking done through a custodian.

A flat exclusion beats a per-transaction cap. A single fixed digital asset deduction, modeled on the $1,500 home office safe harbor, would simplify compliance without forcing taxpayers to track every trade.

What did Coinbase tell Congress about crypto taxes?

On June 9th, 2026, Coinbase VP of Tax Lawrence Zlatkin testified before the House Ways and Means Committee at a hearing on six digital asset tax bills. The bills cover stablecoin reporting, a de minimis exemption for small transactions, mining and staking taxation, broker reporting, charitable donations, and the wash sale rule.

Zlatkin's core message was that the current tax code applies decades-old rules to a new asset class, and that this creates confusion for taxpayers and useless data for the IRS. He argued that information reporting only works when it gives the agency actionable data instead of flooding it with low-value noise.

These are fair points. The 1099-DA generates an enormous volume of data. Much of it serves IRS purposes, but a large share of it is confusing and alarming to the average taxpayer. The government should define what it actually needs and stop there.

What is the crypto wash sale rule?

A wash sale happens when a taxpayer sells an asset at a loss, then buys it back within 30 days before or after the sale. Under Section 1091, that loss is disallowed for tax purposes. The rule exists to stop people from harvesting a tax loss while keeping the same economic position.

Here is the key fact for crypto holders. Section 1091 applies to "stocks and securities." The IRS treats cryptocurrency as property, not as a security. So the wash sale rule does not currently apply to digital assets. A crypto trader can sell at a loss, claim it, and rebuy the same coin minutes later.

The bills before Congress would change that by extending Section 1091 to digital assets. Coinbase supports the change in principle. The crypto industry has largely accepted that parity with stocks is coming.

Why the wash sale rule is hard to enforce in crypto

The wash sale rule is difficult to enforce because trades happen across multiple platforms that do not share data. The IRS only catches a wash sale automatically when the loss and the repurchase happen on the same exchange. That exchange reports it. Spread the two legs across different platforms and neither 1099 reveals the wash sale.

Stock investors have used this gap for years. A trader sells ABC stock at a loss on Fidelity and rebuys it on Vanguard at the same time. The two 1099s never connect. For crypto, it is even easier. Sell on Binance, rebuy on Kraken, and no wash sale is reported anywhere. The IRS cannot reconstruct it on its own, and no one volunteers that information.

This is why CryptoTaxAudit views the wash sale rule as a penalty on uninformed traders. The investors who get caught are usually the ones who did not know to split the transaction across venues. The tax code should be smarter than that.

Multi-exchange activity is exactly what raises audit risk and reporting errors once a wash sale rule takes effect. A TaxShield membership monitors your IRS account and defends your return if the agency questions how your losses were reported.

Should small crypto transactions be tax-free?

A de minimis exemption sounds simple, but in practice it does not remove the compliance burden it claims to solve. Senator Cynthia Lummis's digital asset tax bill proposes a new Section 139J. It would exempt individual transaction gains under $300, with a $5,000 aggregate annual cap.

The problem is proof. To show that a gain fell under $300, a taxpayer still has to track the cost basis and the gain on every single transaction. You cannot prove a transaction qualified for the exemption without first calculating it. That is the exact complication the exemption is supposed to eliminate.

If you do not track all of them, you cannot prove the ones above the threshold were handled correctly either. So the de minimis approach does not actually simplify a taxpayer's life. It just moves the paperwork around.

Tracking cost basis across every wallet and exchange is where most crypto tax errors start. A Full Service Crypto Gain Calculation reconstructs your complete transaction history so your gains, losses, and basis are accurate before you file.

A simpler fix: a flat digital asset exclusion

A flat exclusion would work better than a per-transaction cap. Instead of tracking thousands of small trades to prove each one fell under a threshold, a taxpayer could subtract a fixed amount, for example $5,000, off their net digital asset capital gains for the year.

There is a clear precedent for this. The home office deduction once required taxpayers to prove square footage and itemize utility costs. It was burdensome, and it triggered audits. Eventually the IRS created a safe harbor that gives an effective $1,500 write-off based on a simple per-square-foot rate, with no detailed records required.

That safe harbor model is the better approach for digital assets. Give taxpayers a flat exclusion they can claim without reconstructing every micro-transaction. Simplicity should come from removing the tracking requirement, not from adding a threshold that still depends on it.

Should stablecoins be reported on a 1099-DA?

Zlatkin argued that stablecoins should not be reported on a 1099-DA, and the privacy argument is strong. As more payments move to stablecoins instead of cash, reporting every single transaction becomes both burdensome and intrusive. Coinbase has proposed treating regulated, dollar-pegged stablecoins at par for tax purposes, so spending them does not trigger a gain calculation.

There is a catch worth naming. Stablecoins are not perfectly stable. They vibrate around the dollar peg. Some traders make a good living scalping those moments when a stablecoin breaks the dollar, throwing large sums at tiny price differences and scraping the spread.

Under a par-treatment or no-reporting approach, that profit would go unreported in the United States, even though in many other countries it would be taxed. So a privacy fix for ordinary users could quietly open a loophole for high-volume traders. That tension is worth watching as the digital asset rules get written.

When should mining and staking be taxed?

The IRS taxes mining and staking rewards at fair market value when they are received. Revenue Ruling 2023-14 set this position in 2023, taxing rewards in U.S. dollars at the moment the taxpayer gains dominion and control. The problem is that rewards often carry an inflated value at receipt, and the taxpayer has not actually realized a gain.

Recent litigation has started to draw an important line. In Paschall v. Commissioner, the Tax Court held that staking rewards earned through eToro's custodial service were taxable income. The taxpayer argued the rewards were self-created property that should not be taxed until sold. The court rejected that, noting he did not create the tokens himself and did not own or operate the staking pool.

That distinction matters. The court signaled that the outcome could differ for someone who directly creates tokens by running a validating node, rather than passively receiving rewards through a custodian. The self-created property argument is not dead. It just did not fit a taxpayer who staked through a third party. This is an unsettled area, and more cases are still in process.

Staking income is one of the most common triggers for IRS notices and audits in crypto. A TaxShield membership gives you ongoing IRS account monitoring and audit defense if your staking reporting is ever questioned.

When would wash sale rules actually take effect?

If Congress passes a crypto wash sale rule, it should not be retroactive. CryptoTaxAudit's position is that any new rule should take effect the following tax year, never reaching back to transactions already completed. Coinbase made a similar point, asking for an 18 to 24 month implementation runway so the software and reporting infrastructure can be built first.

The deeper view is that the best wash sale rule for crypto is no wash sale rule at all. The rule does not generate a real gain for the IRS. It mostly punishes traders who did not know how to structure their losses. Coinbase disagrees on the policy and supports parity with stocks, citing Joint Committee on Taxation estimates that broader wash sale rules could raise tens of billions over ten years.

Both sides agree on one thing. Whatever Congress decides, taxpayers and brokers need lead time before a wash sale rule starts. Rushing it would produce reporting mistakes and a wave of IRS audits.

Watch Clinton Donnelly's Crypto Wash Sale Rule Breakdown

This article is based on Clinton Donnelly's video breakdown of Coinbase's testimony, the crypto wash sale rule, and the digital asset tax proposals now being discussed in Congress.

Watch Clinton Donnelly break down the crypto wash sale rule, Coinbase's testimony, and what these proposed changes could mean for crypto investors.

Frequently Asked Questions About the Crypto Wash Sale Rule

Q: Does the wash sale rule apply to crypto right now?

A: No. Section 1091 applies to "stocks and securities," and the IRS treats cryptocurrency as property. That means you can currently sell crypto at a loss, claim the loss, and rebuy the same coin immediately. Bills before Congress would change this by extending the rule to digital assets.

Q: What is a wash sale in plain terms?

A: A wash sale is when you sell an asset at a loss and buy it back within 30 days before or after the sale. For stocks, the tax loss is disallowed. The rule stops investors from claiming a loss while keeping the same position.

Q: I trade crypto on several exchanges. Would a wash sale rule affect me?

A: Yes, and you would be at higher risk of reporting errors. A wash sale spread across two exchanges is not flagged on either 1099, so reconstructing it correctly falls on you. If a rule passes, accurate cross-exchange tracking becomes essential to avoid disallowed losses and audit exposure.

Q: Are staking rewards taxed when I earn them or when I sell them?

A: Under Revenue Ruling 2023-14, staking rewards are taxed as ordinary income at fair market value when you gain dominion and control, meaning when you can sell or transfer them. If you later sell, you may also owe capital gains tax on any change in value. The Lummis bill proposes deferring this tax until sale, but that is not current law.

Q: Would a $300 de minimis exemption mean I can ignore small crypto transactions?

A: Not entirely. Even under the proposed Section 139J, you would still need to track each transaction to prove the gain was under $300 and that your annual total stayed under the $5,000 cap. The exemption reduces tax owed on small gains, but it does not remove the recordkeeping requirement.

Q: Should I keep all my crypto on one exchange to make reporting easier?

A: Consolidating activity can simplify your 1099 reporting, but it is not the only factor, and it has tradeoffs. The right structure depends on your trading volume, security preferences, and the assets you hold.

Q: I'm not sure my crypto taxes are reported correctly. Where do I start?

A: Start with a clear picture of your full transaction history across every wallet and exchange. CryptoTaxAudit offers a consultation to review your situation and identify reporting gaps before the IRS does.