Borrowing crypto and selling it, intending to buy it back cheaper and return it, on a centralized exchange or a DeFi protocol.
Under the rules for short sales of property, gain or loss is recognized when the short is closed by delivering the borrowed asset back, and it is generally short-term regardless of how long the short was open. Borrow fees are not deductible for an investor.
When the short is closed by returning the borrowed crypto, with gain or loss generally short-term. The opening sale is not the taxable moment.
Source: IRC 1233 (by analogy); No IRS guidance as of September 2026; IRS Notice 2014-21 (property treatment)
Last reviewed September 18, 2026. Tax rules change; confirm current law before acting.
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