Bitcoin Tax Planning: Bear Market Strategies for 2024

The IRS doesn't care whether Bitcoin is up or down. They want their cut either way. But here's what many holders miss: a bear market creates legitimate opportunities to reduce your tax burden, sometimes substantially. With Bitcoin dropping to lows around $71,000-$76,000 during the 2024 downturn, investors who understand the rules can turn paper losses into real tax benefits.

The window for some of these strategies won't stay open forever. Let's walk through what works, what's changing, and how to keep your records clean enough to actually claim these deductions.

How Bitcoin Gets Taxed

The IRS treats Bitcoin as property, not currency. That distinction matters because it means every sale, trade, or disposal triggers a taxable event. Hold for less than a year, and any gains get taxed at ordinary income rates (up to 37% for high earners). Hold longer than a year, and you qualify for long-term capital gains rates of 0%, 15%, or 20% depending on your income.

This property treatment cuts both ways. When prices drop and you sell at a loss, you can use that loss to offset gains elsewhere in your portfolio.

Tax-Loss Harvesting: The Bear Market Opportunity

Tax-loss harvesting means deliberately selling assets at a loss to capture tax benefits. With Bitcoin, the math is straightforward: capital losses offset capital gains dollar-for-dollar. If you have $10,000 in stock gains and $10,000 in Bitcoin losses, they cancel out.

If your losses exceed your gains, you can deduct up to $3,000 against ordinary income each year. Anything beyond that carries forward indefinitely, which becomes valuable ammunition for the next bull run.

Here's where Bitcoin gets interesting: unlike stocks, crypto currently has no wash sale rule. With stocks, you can't sell at a loss and repurchase within 30 days, or the IRS disallows the deduction. With Bitcoin in 2024-2025, you can sell, book the loss, and buy back immediately.

A word of caution: the IRS expects "economic substance" in your transactions. Selling and repurchasing the exact same amount seconds later might invite scrutiny. More importantly, this loophole likely has an expiration date. Legislation to extend wash sale rules to crypto has been proposed multiple times, and tax experts widely expect it to pass eventually.

Specific Lot Identification: Maximizing Your Losses

If you've been accumulating Bitcoin over time, you probably have coins with very different cost bases. Some bought at $60,000, others at $25,000. When you sell, you get to choose which specific lots you're disposing of.

The HIFO method (highest in, first out) lets you sell your highest-cost Bitcoin first, maximizing your loss (or minimizing your gain). This requires detailed records showing exactly when you acquired each batch and at what price.

This is where proper transaction tracking becomes non-negotiable. Using a wallet like Sparrow Wallet gives you granular UTXO control and the ability to label transactions, which makes identifying specific lots far more manageable. When you can see exactly which coins came from which purchase, you have the information needed to make strategic selling decisions.

What's Changing: Form 1099-DA and New Reporting Requirements

Starting January 1, 2025, cryptocurrency brokers began issuing Form 1099-DA, reporting gross proceeds from your crypto sales directly to the IRS. Cost basis reporting follows in 2026.

This matters for two reasons. First, the IRS will know about your sales whether you report them or not. Second, you'll want your own records to match what brokers report, especially since early 1099-DA forms may contain errors or miss nuances like specific lot identification.

For 2024 bear market sales that you'll file in 2025, you'll still need to report everything on Form 8949 and Schedule D. The new broker reporting adds another layer of oversight, not a substitute for your own documentation.

Getting Your Records Straight

The biggest obstacle to legitimate tax optimization isn't the rules themselves; it's the recordkeeping. If you've been stacking sats across multiple wallets, exchanges, and years of activity, reconstructing your cost basis can feel impossible.

Bitment addresses this directly with Bitcoin-focused accounting software designed to organize transactions and generate tax-ready reports. If you've accumulated coins through DCA, occasional larger purchases, or even Lightning transactions, having clean records transforms what could be audit anxiety into straightforward compliance. The platform outputs reports compatible with traditional accounting workflows, which matters if you're also working with an accountant or preparing business financials.

Post-2025, with wallet-specific cost basis tracking becoming the norm, having organized historical records will be essential. Tools like Koinly and CoinTracker also serve this purpose, though Bitcoin-specific solutions often handle the particulars better than general crypto tools.

Other Bear Market Strategies Worth Considering

Charitable donations: If you have Bitcoin with significant unrealized gains from years ago, donating it to a qualified charity lets you deduct the fair market value without ever paying tax on the appreciation. This works best during periods when you want to give anyway; the bear market just affects timing.

Long-term holding: If you're sitting on short-term gains and can wait, holding through the one-year mark drops your rate substantially. A bear market that extends your timeline might inadvertently help you qualify.

Offsetting future gains: Losses harvested now carry forward indefinitely. If you expect future bull market profits, banking losses today creates a tax asset you can deploy later.

The Counterargument: Don't Let Tax Tail Wag the Investment Dog

Tax optimization matters, but it shouldn't drive poor investment decisions. Selling Bitcoin solely to harvest a loss, then watching the price surge while you wait to repurchase, costs more than the tax benefit. The wash sale loophole mitigates this for now, but it requires buying back at roughly the same price to truly break even.

Some investors also get so focused on tax maneuvers that they create unnecessary complexity and risk. If your conviction in Bitcoin's long-term trajectory is high, the simplest approach might be to hold, accept the tax situation as it develops, and avoid creating taxable events until you actually need the funds.

Looking Ahead

The 2024 bear market created real opportunities for tax-conscious Bitcoin holders. Tax-loss harvesting without wash sale restrictions, specific lot identification, and new reporting requirements all favor investors who maintain clean records and act strategically.

But this landscape is shifting. Broker reporting is expanding, wash sale rules for crypto are likely coming, and the IRS is paying closer attention to digital assets than ever before. The window for certain strategies is measurably smaller than it was a few years ago.

The practical move: get your records organized now, while the rules still favor the prepared. Understand your cost basis across all holdings, document your transactions thoroughly, and work with tools designed for this specific challenge. When the next bull run arrives, you'll be glad you did the work during the quieter times.