Does the Wash Sale Rule Apply to Cryptocurrencies in Ireland?

  • By: Walter Dunphy ACCA
  • Date: March 5, 2024
  • Time to read: 3 min.

A wash sale is when an individual sells or trades a stock at a loss and, within 4 weeks before or after this sale, buys an identical stock, or acquires a contract or option to do so. While this ‘wash sale’ rule is an americanised term, we have our own version of it in Ireland also – the 4 week rule.

In this blog post, we will investigate whether this rule applies to cryptocurrencies, the newest asset class on the block in Ireland.

Shares sold within four weeks of acquisition

Tax authorities in most jurisdictions have rules set up to limit any benefits that investors can avail of by making these wash sales. In Ireland this is covered under section 581 of the Taxes Consolidation Act 1997.

Where a loss accrues to a person on the disposal of shares and such person reacquires shares of the same class within 4 weeks after the disposal, that person can only deduct the loss from a gain made on a subsequent disposal of same-class shares acquired within the four weeks.

Does the Wash Sale Rule apply to Cryptocurrencies under Irish Tax Law?

It all really comes down to the definition of what a cryptocurrency is in the eyes of Revenue.

Section 581 of the TCA 1997 applies solely to shares and securities and the Revenue have not defined crypto as a security, which would lead to me conclude that this 4 week rule does not currently apply to cryptocurrencies as things stand.

This can be further seen on how the Revenue classify Crypto-Assets on the Capital Gains Tax return form (CG1). Crypto-Assets have their own clear asset class separate to Shares/Securities.

Similarly if we look at the rules in other countries at present, in the United States, the IRS wash sale rule does not currently apply to cryptocurrency because it considers virtual currencies to be property rather than securities.

But just to be perfectly clear, there has been no specific guidance from Revenue on this topic to date.

Tax Loss Harvesting

If this is the case, then it would make it very easy to use a strategy of tax loss harvesting with your crypto-assets. In practice, this would involve selling loss making crypto investments at the end of the fiscal year and immediately repurchasing them to utilise the tax loss in the current year.

Bed & Breakfast Sales Strategy

Another strategy that would be of use to crypto investors is the bed and breakfast sales strategy.

The Bed & Breakfast Sales Strategy is a method of using up your annual exemption of €1,270 every year which can be offset against profits. An investor will dispose of investments that are in a profitable position and repurchase them to utilise the tax exemption to its fullest extent.

By doing this exercise, you will increase the cost basis of your investment, and pay less tax at the time of the ultimate disposal of the investment.

The annual exemption of €1,270 does not carry over on to the next tax year if it is not used. If you don’t use it you lose it, so it is in everyone’s best interest to make sure that it is used every year.

If you are a long term investor that is holding on to your stocks or crypto for a number of years without every realising any of your gains, you will be losing out on a tax saving of €419 (€1,270* 33%).

Disclaimer: This blog post is for informational and educational purposes only and should not be construed as financial advice.

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