Posted 1 week ago | by Catoshi Nakamoto
House Democrats in the U.S. are pushing for further crypto regulations buried within the budget reconciliation bill which would limit crypto trading by introducing a wash sales law for deductions on taxes.
This is being done to fund their $3.5 trillion, 10-year spending package. Previously crypto was used as a means to fund the $1 trillion infrastructure package which is still pending for a vote before the House, Bloomberg reported.
Dems Take Aim Changing Crypto Tax Rules Again
House Democrats have proposed that $2 trillion is needed for their plan. So naturally, this should come from tax increases which they project will garner $16 billion ($1.6 billion per year) in tax revenue acquired from adding cryptocurrencies and other assets to the wash-sale rule. In addition to the law for crypto, Democrats plan to raise the federal corporate income tax rate from 21% to 26.5%. A combined state and federal rate of 30.9% higher than both Europe and China.
As a result of this proposed tax increase, this high rate will be passed along to working families with higher prices, fewer jobs, and lower wages.
Chairman Richard Neal (D-Mass.) of the House Ways and Means Committee released the text for the tax portion of the budget reconciliation bill, which includes a section that restricts crypto investors from being able to deduct losses on certain transactions.
Section 138153 of the bill amends the tax code to specify— foreign currencies, commodities, and digital assets qualifying them under the Internal Revenue Service’s (IRS) rules for wash sales. Under current IRS rules, a wash sale occurs when an investor sells a “stock, security” at a loss, and either 30 days before or after the sale, purchases a “substantially identical” stock or security. The IRS prohibits any deduction of losses when a transaction like this occurs. This already applies for stocks, bonds, and securities but since crypto is classified as property it doesn’t apply. However, now it will be forced upon crypto holders, which decreases chances for an investor to profit and take deductions for losing trades.
Currently, those who participate in the digital asset market can cash out, get the deduction, then immediately re-buy at a lower price leaving a loophole open.
Law Will Limit Crypto Investors’ Ability To Deduct Losses Limiting Trading
The law drafted by Chairman Neal applies to investors who directly purchase digital assets and investors who purchase derivatives of digital assets i.e. options and futures contracts.
Additionally, the bill amends a statute to capture transactions from a variety of entities. In the current law, the wash rules will apply if an investor were to sell a digital asset and the investor’s spouse subsequently purchased an identical digital asset within the specified timeframe. However, Chairman Neal’s bill expands this so that the wash sale rules also apply to a transaction involving the investor’s dependents; “any individual, corporation, partnership, trust, or estate which controls, or is controlled by” the investor; an IRA, health savings account, and much more.
Although, unlike the crypto tax language used in the infrastructure bill this isn’t that much of an unreasonable law and should have been expected given its pre-existence in the traditional finance world.
Bitcoin is currently trading at [FIAT: $46,514.68] UP +5.6% in the last 24 hours according to Coingecko at the time of this report.