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House Democrats proposed legislation Monday that would close a tax loophole for cryptocurrency investors.
The bill would impose “wash sale” rules on commodities, currencies and digital assets, according to an outline issued by the House Ways and Means Committee.
That means bitcoin, ethereum, dogecoin and other popular crypto investments would be subject to the anti-abuse rules, which apply to stocks, bonds and other securities.
Wash sale rules prevent investors from reaping tax benefits from a losing investment and then immediately buying back the same asset.
The IRS treats crypto as property, not as a security, which is how the asset class escapes the rules.
Crypto investors reap two benefits as a result: They can sell crypto for a loss and claim a tax benefit. (That loss can reduce or eliminate capital gains tax on winning investments.) Then, they can quickly buy back the crypto they sold to capture any rebound in price — which isn’t far-fetched given crypto’s volatility.
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By comparison, stock investors aren’t allowed to buy an identical or similar security within 30 days before or 30 days after a sale without triggering penalties.
House Democrats’ proposal would apply to sales after Dec. 31, 2021.
Subjecting crypto and other assets to wash sale rules would raise $16.8 billion over a decade, according to estimates published Monday by the Joint Committee on Taxation.
The measure is among a series of tax reforms Democrats are considering to raise money for climate investments and a significant expansion of the U.S. social safety net, expected to cost up to $3.5 trillion.
Overall corporate and individual tax reforms outlined Monday would raise almost $2.1 trillion over a decade.