Harvest.art

Tax-Loss Harvesting for NFTs and Tokens

Farmer Harvey

Crypto taxes are a weird mix of arithmetic and metaphysics. You buy a thing. Later you sell a thing. If you got less money than you put in, the government sometimes lets you take that difference and use it to reduce taxes on other things. That is loss harvesting. It sounds like a loophole. It is mostly just how the math works.

Tax-loss harvesting is not a trick. It is a routine. You realize a loss today to offset gains. If you still want exposure, you point your money at something similar and keep going. You end up with fewer taxes and roughly the risk you wanted in the first place.

What it is (in one breath)

You sell an asset below its cost basis and record a capital loss in your tax currency. That loss generally offsets capital gains and sometimes a limited amount of ordinary income. If you still want exposure, you can buy a close substitute right away. Whether you can buy the exact same thing immediately depends on where you live and what the thing is. I am not your tax lawyer.

A toy model

  • You buy a token for $1,000. It goes to $600. You sell it for $600. You have a $400 capital loss. You buy a different token with the same thesis for $600. If your thesis is good and the market cooperates, you get the upside from here while using the $400 loss to reduce taxes on gains elsewhere.
  • Same idea for NFTs. You bought at 0.25 ETH, sold at 0.12 ETH, rotated into a collection you prefer. The loss is real. The exposure is still there.

This is the simple picture. The real world has gas, fees, and rules.

Principles to keep you sane

  • Losses are tuition. They buy clarity.
  • Reposition, do not sulk. If you still believe, rotate to a similar exposure.
  • Write things down. If you cannot prove it later, assume it did not happen.

Quick-start checklist

  • Inventory holdings and cost basis for each lot, both NFTs and tokens.
  • Identify positions below basis that you no longer want to hold through tax day.
  • Realize the loss via a sale or a swap. Save tx hashes, venue, fees, timestamps.
  • Optionally rotate into a substitute exposure you prefer.
  • Tag it in your tracker so it flows into your return prep.

A worked example

  • Compute basis and proceeds in your tax currency at the time of each transaction. ETH amounts are useful, but taxes look at USD values when you acquired and when you sold.

  • You minted an NFT paying 0.25 ETH when ETH was $3,200 and spent 0.01 ETH gas.

    • Basis = (0.25 × $3,200) + (0.01 × $3,200) = $800 + $32 = $832.

  • You later sell for 0.12 ETH when ETH is $2,900 and pay 0.005 ETH in marketplace fees and gas.

    • Proceeds = (0.12 × $2,900) − (0.005 × $2,900) = $348 − $14.50 = $333.50.

  • Realized loss = $832 − $333.50 = $498.50. You rotate into a different collection you prefer.

Same pattern for tokens: basis includes what you paid plus acquisition gas and fees at that time. Proceeds are what you receive net of sale gas and DEX or marketplace fees at the time of sale. The numbers are boring. Make them boring in a consistent way.

NFT-specific notes

  • Basis includes mint price plus mint gas. Airdrop claim gas adds to basis of the airdrop.
  • Creator royalties and marketplace fees reduce proceeds at sale time.
  • Traits matter for price. The tax lot is the token ID you actually sold, not the vibe of the collection.

Token-specific notes

  • DEX fees and price impact reduce proceeds. Acquisition gas increases basis.
  • If you swap A to B to harvest a loss, you can keep exposure with a basket or a substitute you genuinely prefer. The point is the risk, not the ticker.

Process you can repeat

  • Monthly sweep: tag below-basis positions you are comfortable rotating.
  • Final pass in Q4: clear the obvious, high conviction losses first.
  • Keep an export: wallet to CSV or explorer to notes to a folder with tx hashes.

Caution without fear

Rules differ by jurisdiction and they change. Some places have wash sale concepts for some assets. Some do not. Treat this as education, not advice. If you ask a professional, bring clean records and specific questions.

You are not trying to outsmart the code. You are trying to comply with it in a way that leaves you more optionality next year. Harvest losses when it is rational. Keep the exposure you actually want. Then go build something.