On the 15th, the US House of Representatives Revenue Committee approved the tax provisions of the bill for fiscal spending, including the components related to cryptocurrencies.
A major loophole found in one of the amended provisions was the restrictions on tax-loss harvesting which would apply to cryptocurrencies as well. The draft submitted was approved by the Ways and Means Committee yesterday with the voting line at 24-19.
The fiscal spending bill will budget $3.5 trillion to implement President Biden’s Infrastructure bill. After being approved by the Ways and Means Committee, responsible for legislation on taxation, the bill will be sent to the budget committee.
According to crypto media The Block, the Democratic Party is planning to proceed without amending the budget, and it is not expected to change unless there is any mass disapproval from the Senate.
New provisions
Democrats on the Revenue Commission have proposed new rules to reduce tax-loss harvesting in cryptocurrency trading to secure funding for the Biden administration’s budget.
Shehan Chandrasekera of CoinTracker explained the new rules via an email to The Block. He said:
“If this version of the bill were to pass, crypto holders will have to wait 30 days before (and after) buying the same coin he/she sold at a loss. If you buy the same coin without waiting for 30 days, the IRS would not allow you to deduct the loss as a capital loss in the tax year.
That said, note that the taxpayer will not completely lose the tax benefit of the loss. It will be deferred. The loss would be added to the basis of the coin. So, when you later dispose of the coin, it will result in lower capital gains.”
Similar ‘Wash sale’ rules were previously applied to the stock, bonds, and securities markets. The new clause now also includes commodities, currencies, and digital assets.
Wash sale is a method of selling an asset at an unrealized loss, recording the loss, and then immediately repurchasing the stock to gain the benefit of tax reduction due to the loss while still holding a substantial position in the market.
The amendments will apply to tax provisions beginning from or after 31 December 2021.