How it works
Harvesting means selling an asset at a loss on purpose to offset gains realized elsewhere. Capital losses first offset gains of the same type (short against short, long against long), then the other type, then up to 3,000 dollars of ordinary income per year, with any remainder carried forward indefinitely. For crypto, the absence of a wash sale rule means you can repurchase immediately.
Why it matters
A loss you never realize does nothing for you. Year-end review of positions with unrealized losses is the simplest planning move most crypto investors skip, and the losses carry forward against future years’ gains.
Example
You have a 40,000 dollar realized gain from selling ETH. You hold SOL with a 25,000 dollar unrealized loss. Selling the SOL before year end cuts your taxable gain to 15,000 dollars, and you can buy the SOL back the same day.
Related: wash sale rule, worthless crypto.
