Wash Sale Detection

Wash Sale Detection

Detect wash sales under current US crypto tax rules (effective 2025), monitor the 61-day window around realized losses, track disallowed losses with basis adjustments, and compute safe re-entry countdowns.

Disclaimer: This skill provides informational analysis only. It is NOT tax advice. Consult a qualified tax professional or CPA for guidance on your specific situation. Tax law is complex, and the application of wash sale rules to cryptocurrency may vary based on individual circumstances, IRS guidance updates, and court rulings.

Background

Before 2025, cryptocurrency was not subject to the wash sale rule because digital assets were classified as property rather than securities. The Infrastructure Investment and Jobs Act and subsequent IRS rulemaking extended wash sale treatment to digital assets beginning January 1, 2025.

Under IRC Section 1091 (as amended for digital assets), if you sell or dispose of a cryptocurrency at a loss and acquire a substantially identical asset within a 61-day window (30 days before the sale through 30 days after), the loss is disallowed for tax purposes. The disallowed loss is added to the cost basis of the replacement position.

Key Concepts

The 61-Day Window

Day -30 ................. Day 0 ................. Day +30
  |--- 30 days before ---|--- sale day ---|--- 30 days after ---|
  ^                       ^                                      ^
  Window opens        Loss realized                    Window closes

• Day 0: The day you sell a position at a realized loss
• Days -30 to -1: Purchases in this range trigger a wash sale retroactively
• Days +1 to +30: Purchases in this range trigger a wash sale prospectively
• The window is calendar days, not trading days

Substantially Identical Assets

For crypto, "substantially identical" generally means the same token. Selling SOL at a loss and buying SOL within 30 days is a wash sale. Selling SOL and buying ETH is not (they are different assets).

Edge cases that may be scrutinized:

• Wrapped vs unwrapped versions of the same token (e.g., SOL vs wSOL)
• Tokens across different chains (e.g., USDC on Solana vs USDC on Ethereum)
• Derivative tokens that track the same underlying (e.g., stSOL and SOL)

Disallowed Loss and Basis Adjustment

When a wash sale occurs:

1. The realized loss is disallowed — you cannot deduct it in the current tax year
2. The disallowed loss is added to the cost basis of the replacement position
3. The holding period of the original position may carry over to the replacement

Example:

• Buy 10 SOL at $100 each (cost basis: $1,000)
• Sell 10 SOL at $80 each (proceeds: $800, loss: $200)
• Buy 10 SOL at $85 within 15 days (wash sale triggered)
• New cost basis: $850 + $200 disallowed loss = $1,050
• The $200 loss is not gone — it is deferred into the new position

Prerequisites

• Python 3.10+
• No external dependencies required (standard library only)
• Trade history data in CSV or structured format with: date, action (buy/sell), token, quantity, price, proceeds, cost basis

Capabilities

1. Wash Sale Scanning — Analyze a trade history and flag all wash sale violations
2. 61-Day Window Monitoring — Track open windows for recent loss-generating sales
3. Disallowed Loss Calculation — Compute the exact disallowed amount per wash sale
4. Basis Adjustment Tracking — Show adjusted cost basis for replacement positions
5. Safe Re-Entry Countdown — For each token sold at a loss, show days remaining until safe to re-enter
6. Automation Hazard Detection — Flag copy-trade systems or bot strategies that may inadvertently trigger wash sales

Quick Start

from datetime import date

# Define your trade history
trades = [
    {"date": date(2025, 3, 1), "action": "buy",  "token": "SOL", "qty": 10, "price": 100.0},
    {"date": date(2025, 3, 15), "action": "sell", "token": "SOL", "qty": 10, "price": 80.0},
    {"date": date(2025, 3, 25), "action": "buy",  "token": "SOL", "qty": 10, "price": 85.0},
]

# Check for wash sales
from scripts.wash_sale_scanner import WashSaleScanner

scanner = WashSaleScanner(trades)
results = scanner.scan()

for ws in results.wash_sales:
    print(f"WASH SALE: {ws.token} — Loss ${ws.disallowed_loss:.2f} disallowed")
    print(f"  Sale: {ws.sale_date} | Re-entry: {ws.replacement_date}")
    print(f"  Adjusted basis: ${ws.adjusted_basis:.2f}")

# Check safe re-entry countdowns
for countdown in results.countdowns:
    print(f"{countdown.token}: {countdown.days_remaining} days until safe re-entry")

Use Cases

1. End-of-Year Tax Review

Scan your full year of trading activity to identify all wash sales before filing taxes. Generate a report showing total disallowed losses and adjusted cost bases.

2. Real-Time Monitoring

Before placing a buy order, check whether the token has an open wash sale window from a recent loss. Avoid inadvertent wash sales by waiting for the countdown to expire.

3. Copy-Trade and Bot Audit

Automated trading systems (copy-trading bots, DCA bots, grid bots) frequently trigger wash sales because they buy and sell the same tokens repeatedly. Run this scanner on bot trade exports to quantify the tax impact.