In an unexpected series of events, Cryotocurrency might soon be subject to the dictates of a new Wash Sale rules. Indications regarding this started making wave following a new proposal by House Democrats who released a package of proposed tax increases.
The package is part of efforts already in place to help pay for the White Houses $3.5 trillion spending package.The package includes a $2 trillion tax hike. Prominent among the hikes is a proposal to add commodities, currencies and digital assets to the wash-sale rule.
This single move, which puts crypto in the line of the authoritues, is estimated to raise about $16 billion over a decade. If approved, the proposal include clauses directly aimed at closing a well known loophole exploited by major cryptocurrency investors for the deferral of capital-gains taxes.
As they can with stocks, investors are allowed to claim a deduction when selling cryptocurrencies at a loss. To claim the deduction for a stock sale, investors must wait at least 30 days before buying the shares back or making another investment that gives them an equivalent exposure. If they dont, the transaction is considered a wash salethats ineligible for a capital-gains deduction.
It is important to note that currently, the Internal Revenue Service in the United States classifies cryptocurrency as property and not as a security.
As a result of this, investors at the moment can are not binded by the rule and can quickly sell and buy the currencies while still claiming the deduction. But once the proposal by the House Democrats gets enacted, that loophole becomes a no go area for them again.
This new attempt to close a crypto investment loophole is coming less than a month after the cryptocurrency industry made an unsuccessful attempt to fight for the exclusion of a provision in the Senate infrastructure bill that would require more crypto firms to report information on their users in an effort to increase tax compliance.
Multiple Cryptocurrency advocates argued that the provision was not feasible. Even though it was projected to raise $28 billion over a decade, the advocates maintained that it was unworkable and would seemingly require information from firms that cant collect it.
“We are comfortable with this provision provided it only applies existing rules to crypto assets and doesnt lead to other unintended consequences,” said Kristin Smith, executive director of the Blockchain Association, a crypto trade group.