Chrisnpong Detraphifate | instant | Getty Images
House Democrats on Monday proposed legislation that would close the tax loophole for cryptocurrency investors.
According to a framework released by the House Ways and Means Committee, the bill would apply “wash sale” rules to commodities, currencies and digital assets.
This means that bitcoin, ethereum, dogecoin, and other popular crypto investments will be subject to anti-abuse regulations, which apply to stocks, bonds, and other securities.
Indirect selling rules prevent investors from reaping tax benefits from a losing investment and then buying back the same asset immediately.
The IRS treats crypto as an asset, not a security, thus escaping asset class regulations.
As a result, crypto investors enjoy two advantages: they can sell crypto at a loss and claim tax breaks. (This loss can reduce or eliminate the capital gains tax on winning investments.) Then, they can quickly buy back the sold crypto to catch any price rebound – which is far from over given the volatility of crypto. Not a penny.
More from Personal Finance:
House Democrats propose new 401 (k) and IRA rules for the rich
House Democrats propose to raise capital gains tax to 28.8%
House Democrats are proposing a top tax rate of 39.6% at these income levels
In comparison, equity investors are not allowed to buy the same or a similar security within 30 days before or 30 days after the sale without penalty.
The House Democrats’ proposal will take effect on sales after December 31, 2021.
The sale of crypto and other assets will raise $ 16.8 billion over a decade to eliminate regulations, according to estimates released by the Joint Committee on Taxation on Monday.
The measure is part of a series of tax reforms Democrats plan to raise funds for climate investments and a significant expansion of the U.S. social safety net, which is expected to cost up to $ 3.5 trillion.
The comprehensive reform of corporate and personal taxation presented on Monday will raise around $ 2.1 trillion over a decade.