US House Democratic released a proposal on Sept 13 to the ominous tax infrastructure bill, which could raise billions of dollars but restrict investors. Included in the $2 trillion in tax hikes is the proposal, which adds commodities, currencies, and digital assets to the “wash-sale” rule. If passed, it would raise close to $16 billion in the coming decade. Crypto regulations are still in a grey area in most parts of the world.
The new addition closes a loophole employed by some crypto investors.
The new addition of the crypto tax plan closes a loophole employed by some crypto investors. The loophole helps investors bypass capital-gains taxes when selling at a loss. Investors must wait 30 days before repurchasing the shares or making an equivalent investment for this to happen. Otherwise, it is a “wash sale,” which is not considered a capital-gains deduction. Moreover, crypto currently falls under property, according to the Internal Revenue Service (IRS). Therefore it is not subject to such rules. As it stands, investors in digital assets can sell and buy cryptocurrencies and claim deductions. However, the new tax plan changes this.
The new regulation does not have unintended consequences.
Kristin Smith, the executive director of the Blockchain Association, said, “We are comfortable with this provision provided it only applies existing rules to crypto assets and doesn’t lead to other unintended consequences. Earlier, the cryptocurrency industry felt panic at the initial tax infrastructure bill, which broadly classified the term “broker.” It grouped almost every actor within the community under the same reporting bracket. If passed as is, it had industry-rattling potential. Many inside the industry, including Coinbase CEO Brian Armstrong, called the bill detrimental to future innovation. Others outside of the space, like Senator Pat Toomey, stood on the side of crypto.