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- US President Joe Biden’s Administration to impose rules to stop tax-loss harvesting in the upcoming budget plan.
- The budget would also include the doubling of capital gains for some specified investors.
The US has recently been working on crypto-related bills to eliminate the challenge of regulatory uncertainty among investors. Many have been very expectant about the fiscal 2024 budget plan on March 9, however, U.S. President Joe Biden could have some proposed rules that can affect the market. This includes a crackdown on crypto wash and a doubling of capital gains for certain investors.
Plan to end tax-loss harvesting
According to a report, the budget seeks to raise around $24 billion with changes to crypto tax treatment. The administration is also set to reduce the deficit by almost $3 trillion over the next decade. The proposal also has a plan to end a strategy called tax-loss harvesting. With this strategy, crypto traders sell assets at a loss for tax purposes, then repurchase them immediately after.
Under the current “wash sale” rules, this strategy is highly not permitted with stocks and bonds. However, considering the fact that digital assets have yet not been classified as securities, the rules do not apply to them. The IRS classifies crypto as property.
Speaking to this, Danny Talwar, from crypto tax software firm Koinly stated that the timing for the rules is significant.
This is an inevitable consideration for the US which, if implemented, will see it on par with other jurisdictions such as Canada and Australia, where crypto wash sales apply. If the rule is applied, the timing is significant as many crypto holders who entered the crypto space on the back of 2021 market peaks are suffering from heavy losses.
It is important to note that the doubling of the capital gains tax rate would apply to investors who make more than $1 million. In this case, they will pay 39.6 percent on long-term investments. The current tax rate is 20 percent. In addition, corporations and wealthy Americans could have their income levies raised. An estimate by the Joint Committee on Taxation stated that the rule could raise $16.8 billion over a decade.
Similar crypto bill proposed in 2021
In 2021, House Democrats proposed a similar bill to impose a “wash sale” rule on commodities, currencies, and digital assets.
Around that period, Ivory Johnson, a certified financial planner and founder of Delancey Wealth Management in Washington, D.C. explained that cryptos are so dissimilar that selling Bitcoin and buying Ethereum would not violate the rules.
The similarities start and end with the coins being exchanged on a blockchain. Using that logic, stocks traded on an exchange, NYSE or otherwise, are not considered one and the same either. Stated plainly, bitcoin is to ether what Gold is to Visa — they’re not ‘substantially similar’ and should not in my opinion trigger the wash sale rule.
It is worth noting that a crypto tax-related piece of legislation has already been drafted into law by the President’s team in 2021. The Infrastructure Investment and Jobs Act, formerly known as Bipartisan Infrastructure Framework added a tax provision that imposed some rules on brokers facilitating crypto transactions.
