Cryptocurrency has surged again in 2025, leaving many investors with significant unrealized gains and questions about how those gains are taxed. Whether you actively trade or hold long-term positions, the tax rules for crypto differ from those that apply to traditional securities. With the year-end approaching, now is the time to evaluate your positions, lock in strategic gains or losses, and prepare your portfolio for 2026.
Crypto investors can reduce taxes before year-end by harvesting gains or losses, donating appreciated coins to charity, gifting crypto to family members, avoiding wash-sale limitations, and using self-directed retirement accounts for future purchases.
1. Consider Tax-Gain Harvesting to Reset Your Basis
If you expect higher income in 2026 or believe your crypto may appreciate further, it may be beneficial to intentionally recognize gains in 2025.
This strategy, known as tax-gain harvesting, involves:
• selling appreciated crypto now
• realizing the gain at today’s long-term capital gains rate
• repurchasing the same asset to lock in a higher cost basis
A higher basis reduces your future taxable gain.
Note:
If the crypto has been held less than one year, the gain is taxed at ordinary income rates. Waiting until the position qualifies for long-term treatment may produce a better result.
2. Use Loss Harvesting to Offset Gains
If you hold crypto that has declined in value, selling before year-end allows you to:
• offset capital gains from other crypto or stocks
• reduce overall taxable income
• deduct up to $3,000 of net capital losses against ordinary income
• carry forward unused losses for future years
Losses must be applied correctly across short-term and long-term categories.
3. Take Advantage of No Wash-Sale Rule for Crypto
Unlike stocks, crypto is treated as property. The wash-sale rules do not apply to digital assets.
This means you can:
• sell a crypto asset at a loss
• realize the tax benefit
• repurchase the same asset immediately
There is no required 30-day waiting period.
4. Donate Appreciated Crypto for a Double Benefit
If you plan to donate before year-end and itemize deductions, appreciated crypto can be more tax-efficient than cash.
Benefits include:
• no capital gains tax on the appreciation
• a charitable deduction equal to the fair market value if held more than one year
For donations over $5,000, a qualified appraisal and Form 8283 are required. Charities must provide written acknowledgment.
Donor-advised funds may also accept crypto, allowing immediate deduction with future distributions.
5. Gift Crypto Within the Annual Exclusion Limits
Crypto can also be used for tax-efficient family gifting.
For 2025, you may gift:
• up to $19,000 per recipient
• or $38,000 with gift-splitting
No gain is recognized on the gift, and the recipient does not report income until they sell.
Provide recipients with written documentation of:
• your acquisition date
• your cost basis
• amount and type of crypto gifted
• date of transfer
• fair market value at the time of transfer
This ensures accurate reporting later.
6. Consider Crypto Inside a Self-Directed IRA or Solo 401(k)
You cannot transfer existing crypto directly into an IRA, but you may:
• sell the asset
• contribute the cash
• repurchase crypto inside a self-directed IRA (SDIRA)
An SDIRA or self-directed solo 401(k) allows tax-deferred or tax-free (Roth) growth and may provide larger contribution limits.
While this is not strictly a December deadline, year-end is a good time to explore whether you want this structure for 2025 planning.
Crypto Year-End Planning Checklist
☑ Project gains and losses for 2025
☑ Decide whether to harvest gains or losses
☑ Repurchase loss assets immediately (wash-sale rule does not apply)
☑ Evaluate donating long-held appreciated crypto
☑ Consider annual exclusion gifts before December 31
☑ Explore SDIRA or solo 401(k) options
☑ Organize cost-basis records
Continue the series: Crypto tax rules are evolving quickly. In Part 2, we break down what the new Form 1099-DA means, which platforms must report transactions, and how cost basis tracking is changing for 2025 and beyond.
Read Part 2: 2025 Crypto Tax Reporting Is Changing. What Form 1099-DA Means for Investors
Crypto taxes are complex. Brothers Tax can help you calculate gains, evaluate gifting or donation strategies, and model year-end moves. Schedule your review with us.