Bitcoin prices have fallen significantly over the last two months, according to Forbes. As we head into the final month of 2025, investors need to be aware of the potential tax benefits associated with such a decline. This article summarizes the tax treatment for cryptocurrencies, such as Bitcoin, and how investors can realize significant tax benefits from selling their Bitcoin at a loss before the ball drops on New Year’s Eve.
Bitcoin Tax Treatment
As I outline in a Poole Thought Leadership article, the tax treatment of Bitcoin in the United States treats these assets not as a form of currency, but instead as a capital asset. This treatment means that owners of the asset can dispose of it as a capital gain or capital loss.
For instance, consider a taxpayer who buys Bitcoin at a price of $100,000. If the taxpayer sells it for $120,000, they would have a $20,000 capital gain. If held for less than one year, this gain would be taxed at the taxpayer’s ordinary income tax rate (ranging from 10% to 37% depending on their other income).
If the taxpayer holds the Bitcoin for one year and one day or longer, the taxpayer can treat the capital gain as a long-term capital gain, meaning that the gain is taxed at a preferential tax rate ranging from 0% for low-income taxpayers to 15% for middle-income taxpayers to 20% for high-income taxpayers.
However, let’s suppose that the taxpayer who bought Bitcoin for $100,000 instead sells it for $80,000. In this case, the taxpayer would have a $20,000 capital loss. When this happens, the taxpayer has two key tax outcomes. First, the taxpayer can deduct $3,000 of this loss every year against their ordinary income until the entire capital loss is used up.
Second, the taxpayer can use the capital loss to offset other capital gains they incurred. For instance, suppose the same investor had a different $50,000 long-term capital gain along with their $20,000 Bitcoin loss. The taxpayer would lower their ordinary income by $3,000, and apply the remaining $17,000 in capital loss against their $50,000 capital gain. The result is that the taxpayer would only pay taxes on $33,000 of their $50,000 long-term capital gain.
The Bitcoin Crash Of November 2025
Heading into 2025, many cryptocurrency investors were optimistic about the future of cryptocurrencies like Bitcoin. This comes off the heels of the election of President Trump to his second term. Trump touted himself as a pro-cryptocurrency President, who intended to make the United States the epicenter for cryptocurrency, according to CoinDesk.
This optimism led to new high’s for Bitcoin. According to Investopedia, Bitcoin, reached its peak price of over $124,000 in October of 2025. This price is tens of thousands of dollars per Bitcoin more than when he won the 2024 Presidential election.
However, this past month has seen the optimism fade. Since the record high, the value has fallen nearly 30% to below $90,000 per Bitcoin. Forbes reports that this decline represents a significant shock to the cryptocurrency world that has reverberated across all financial markets.
For much of 2024, the price of Bitcoin hovered around $60,000, and, before that, it was far less pricey. Thus, while many Bitcoin investors are still in a net positive position, those who have purchased cryptocurrency like Bitcoin in the past year are seeing negative net positions in their portfolio.
2 Key Tax Benefits For Selling Bitcoin At A Loss
Any taxpayer would choose to have a gain on their investments as opposed to a loss. However, it is important to point out that these loss positions can be used as a powerful tax savings tool for two key reasons.
- Bitcoin Losses Can Lower Taxable Income. Consider a taxpayer who bought Bitcoin at a price of $124,000 and sold it at a price of $90,000. This taxpayer would have a $34,000 capital loss. The taxpayer could use their loss to lower their ordinary income by $3,000 in 2025. Furthermore, if the taxpayer had other capital gains in 2025, they could offset the tax liability from those gains.
- Wash-Sale Rules Do Not Apply To Cryptocurrencies Like Bitcoin. While investors cannot realize tax benefits if they sell a stock at a loss and immediately buy it back, these rules do not apply to cryptocurrency. As outlined by Bowditch Attorneys, the act of selling an asset at a loss and then buying it back is deemed a “wash-sale”. Since the rules do not currently apply to cryptocurrency, a taxpayer with a $34,000 loss position in Bitcoin could sell it, recognize the $34,000 capital loss, and then immediately buy it back at the same price. Importantly, this tax benefit is only for current transactions, as Congress has considered proposals for revising the wash-sale rules surrounding cryptocurrency, according to DLA Piper.
As we head into the final month of 2025, taxpayers need to start planning to lower their income tax liability using legal means, like selling their assets they are holding in a loss position. While the stock market continues to sit at very high levels (meaning taxpayers have less of an opportunity to sell their equity investments at a loss), the recent Bitcoin price decline provides an opportunity for taxpayers to recognize losses on their holdings. In particular, taxpayers will want to consider selling their Bitcoin at a loss and then buying them back shortly thereafter. This series of transactions will allow the taxpayer to recognize capital losses in 2025 while maintaining their Bitcoin holdings.