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The House Democrats’ plan would close tax loopholes used by crypto investors

The House Democrats’ plan would close tax loopholes used by crypto investors

krisanapong detraphiphat | Moment | Getty Images

The House Democrats on Monday proposed legislation that would close a tax loophole for cryptocurrency investors.

The bill would impose rules for “laundry sales” on commodities, currencies and digital assets, according to a survey released by the House Ways and Means Committee.

This means that bitcoin, ethereum, dogecoin and other popular crypto investments would be subject to the anti-abuse rules that apply to stocks, bonds and other securities.

Wash sales rules prevent investors from reaping tax benefits by losing an 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, which they sold, to catch any decline in price — which is not far off given the volatility of crypto.

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In comparison, equity investors may not purchase an identical or similar security within 30 days before or 30 days after a sale without triggering sanctions.

The House Democrats’ proposal would apply to sales after December 31, 2021.

Exposing crypto and other assets to launder sales rules would increase $ 16.8 billion over a decade, according to estimates released Monday by the Joint Committee on Taxation.

The measure is among a series of tax reforms the Democrats are considering raising money for climate investment and a significant expansion of the U.S. social safety net, which is expected to cost up to $ 3.5 trillion.

Overall, corporate and individual tax reforms outlined Monday will increase nearly $ 2.1 trillion over a decade.

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