Can Your October Crypto Losses Cut Your 2026 Tax Bill?

October 2026 was tough for many Bitcoin (CRYPTO: BTC) and other crypto holders, as several coins saw significant drops in value. Crypto tax-loss harvesting could let these investors turn losses into tax savings for 2026 if they sell before the year’s end.

In October, Bitcoin dropped 7%, while Ethereum (CRYPTO: ETH) and XRP (CRYPTO: XRP) fell 16%. Solana (CRYPTO: SOL) fell even more, down 19%. Overall, the crypto market lost around $360 billion in value, bringing the total market capitalization to about $2.61 trillion.

Tax-loss harvesting involves selling a cryptocurrency for less than what you paid, allowing you to offset gains and reduce your taxable income. The IRS permits this strategy for crypto, but deadlines, an annual limit of $3,000, and potential tax-law changes can affect how much you can save.

October’s Crypto Selloff Left Many Investors With Paper Losses

If you bought cryptocurrencies in 2025, you’re likely holding assets that are currently worth much less than your purchase price. As of November 1, Bitcoin is trading at $78,050, and XRP at $1.25, significantly below many 2025 purchase prices.

Many investors hesitate at this point; selling may feel like giving up, while holding on might seem like waiting for a better market. One user on r/Bitcoin questioned whether to sell all their Bitcoin “to realize a loss” and then buy it back shortly after, highlighting the dilemma many face.

The key to this decision is that only a realized loss—one that occurs when you actually sell—can offset gains and reduce taxable income. Selling after December 31 means the loss would apply to the following year’s taxes instead. Therefore, investors must decide before the year ends whether to sell for a deduction, sell and buy back to maintain their exposure, or simply hold and wait for a market recovery.

Crypto Losses Offset All Gains but Only $3,000 of Income

The IRS treats digital currencies as property, so selling a coin for less than its purchase price results in a capital loss, similar to selling a stock at a loss. This loss can first offset any capital gains. If your losses exceed your gains, you can deduct up to $3,000 against ordinary income—like wages—for the year, or $1,500 for married couples filing separately. You can carry forward any remaining losses to future years.

For example, if someone invested $10,000 in XRP at $3 each in July 2025, and it’s now worth about $4,167 at $1.25, selling would lock in a loss of approximately $5,833, representing a 58% drop. If this individual earned $5,833 in stock gains in 2026, the XRP loss could eliminate taxes on those gains.

On the other hand, if someone bought one Bitcoin for $110,000 and sells it at $78,050, that individual realizes a loss of $31,950 (about 29%). If they have no gains to offset this loss, they can only deduct $3,000 from their ordinary income in 2026; the remaining $28,950 would carry over to later years.

For a single filer in the 22% tax bracket, which starts above $50,400 in taxable income for 2026, this $3,000 deduction could save them around $660 in taxes.

Crypto Holders Have Three Choices Before December 31

Sell and Exit

This approach locks in the loss and reduces crypto exposure. However, it means losing your position unless you buy back after selling, and you could miss out on potential market recovery. This option is best for those who have lost confidence in the coin.

Sell and Buy Back

The wash-sale rule prohibits claiming a loss if you purchase substantially identical stocks or securities within 30 days before or after selling. Thankfully, because crypto is considered property, this rule does not apply to direct coin holdings as of November 1. However, crypto ETFs, which are securities, could trigger the wash-sale rule if you sell and rebuy quickly.

Rebuying keeps your investment intact but lowers your cost basis, which could result in a higher taxable gain in the future. This approach may suit long-term holders looking to offset gains.

Hold and Wait

Holding onto your cryptocurrencies retains all potential upside but offers no tax deduction. For anyone realizing gains in 2026, holding can be the least beneficial choice, as the IRS will tax those gains while the loss remains unused.

Can Crypto Tax-Loss Harvesting Lower Your 2026 Tax Bill?

Yes, losses from October could reduce your 2026 tax bill, as long as you sell before December 31 and report the transaction. First, evaluate any gains you’ve realized in 2026, because that is where your loss will have the most impact. Exchanges must now report crypto sales using Form 1099-DA, but they won’t provide cost basis information for coins acquired before 2026, so you’ll need to keep your own purchase records. State tax laws may differ from federal regulations.

Remember, a paper loss won’t help; you can deduct only losses from actual sales or exchanges. If the proposed H.R. 10357, which would extend wash-sale rules to digital assets, becomes law, the option to sell and quickly rebuy could vanish, making it crucial to act before December 31.

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