I have distributions from my IRA totalling $900,000. The withheld tax is 10%, or $90,000, so I know I will owe additional taxes of roughly $200,000 there. In 2025 I used $550,000 to acquire 5 bitcoin at a cost basis of $110,000 each. Those bitcoin are currently valued at $450,000 ($90,000 each). My question is, since I will owe $200,000 in additional taxes on my IRA distributions, am I better off selling some bitcoin at a loss to offset the tax hit and raise the cash to pay the taxes, or to hold onto the bitcoin in the hopes it will appreciate significantly in 2026 (or even later) and then figure out another way to raise the money to pay this year's taxes? E.g., via a bitcoin-secured loan, etc. And if so, what is the target price bitcoin would have to hit to make it advantageous for me to wait?
I am a US taxpayer with no state tax obligations and am open to ideas. Thanks in advance for your advice.
The core tax rule you’re missing
Capital losses do NOT meaningfully offset IRA distributions.
IRA distributions are ordinary income. Bitcoin losses are capital losses.
Those live in different tax buckets.
In the US:
Capital losses can offset capital gains dollar for dollar Capital losses can offset only $3,000 per year of ordinary income The rest carries forward to future years
So even if you sold all 5 BTC at a $100,000 loss, it would reduce your current tax bill by about $3,000, not $100,000.
That means selling BTC at a loss does almost nothing to reduce the ~$200,000 tax owed on the IRA distribution.
What selling BTC at a loss does accomplish
Selling would:
Generate cash to pay taxes Lock in a capital loss you can carry forward Potentially offset future capital gains if BTC rebounds later and you trade again
What it does not do: Offset IRA income in any meaningful way “Cancel out” the tax hit from the distribution
So this is not really a tax optimization question. It’s a liquidity and market-risk question.
About waiting for BTC to recover
If BTC goes back above your $110k cost basis before you sell, you lose the capital loss entirely. If it appreciates later and you sell at a gain, you’ll owe capital gains tax on that appreciation. There is no price where “waiting” suddenly offsets the IRA tax bill. The two are unrelated for tax purposes.
Bitcoin-backed loans - Be careful here:
Loans do not create taxable income But they introduce liquidation risk If BTC drops further, you could be forced to sell at the worst time Interest is usually not deductible for personal expenses This can make a bad year worse if the market moves against you.
How to think about this correctly
Your IRA tax bill is fixed. It will not be meaningfully reduced by crypto losses. BTC decisions should be based on conviction and risk tolerance, not tax offsets. If you need cash to pay taxes, selling assets may be necessary, but don’t expect tax relief from the loss. Capital losses are valuable mainly if you expect future capital gains, not ordinary income.
Bottom line
Selling BTC at a loss will not offset your IRA taxes in any meaningful way. This is a cash-flow decision, not a tax-arbitrage opportunity.
This is very helpful. Thank you. In that case, if I am assuming that bitcoin won't drop much from its current value and will likely increase in value in 2026, there is little advantage in liquidating at this year's lower prices. I can wait until next year and apply for an extension to complete my taxes, giving me additional time for the bitcoin price to recover/rise. (I am aware there is no guarantee that will happen.)
If I intend to sell bitcoin to pay my tax obligation and I think bitcoin can improve it's price from current levels by the middle of next year, I am better off waiting.
The issue is IRA distributions are ordinary income, not capital gains. So if you realized the loss, it wouldn’t necessarily offset your IRA income.
Do you have any additional capital gains this year? If you do, these could be offset.
Lastly, it’s generally a good idea to realize the loss anyways as any excess loss will be carried forward to future years. Further, the wash sale rule doesn’t apply, so in theory you’d be able to buy the BTC back without needing to wait a full 30 days. So you could sell at $90k, wait however long you want (not necessarily 30 days), and rebuy at the same or similar price while still harvesting the loss.
The one thing to be aware of here is the economic substance doctrine. I outline this in greater detail in my tax loss harvesting guide here: https://www.reddit.com/r/CryptoTax/s/DDx0qJhil1
Shehan from CoinTracker here.
Capital losses from the sale of your crypto will not offset your ordinary income from IRA distributions, unfortunately.
Let's hope you don't have to pay the early withdrawal penalty on top of your distribution income.