House Democrats’ plan would close tax loophole used by crypto investors

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

The bill would impose “wash sale” rules on commodities, currencies and digital assets, according to a plan released by the House Ways and Means Committee.

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

Clear-selling rules prevent investors from reaping tax benefits from a losing investment and then immediately redeeming the same asset.

The IRS treats crypto as a property, not a security, which is how the asset class escapes the rules.

Crypto investors get two advantages: They can sell crypto at a loss and claim a tax advantage. (This loss can reduce or eliminate the capital gains tax on winning investments.) Then, they can quickly redeem the crypto they sold to capture any price rebounds that are not exaggerated given the crypto volatility.

Read more on personal finance: House Democrats propose new 401 (k) and IRA rules for the rich

In comparison, equity investors are not allowed to buy an identical or similar security within 30 days of or 30 days after a sale without triggering penalties.

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

Subjecting crypto and other assets to wash-selling rules would raise $ 16.8 billion over a decade, according to estimates released Monday by the Joint Committee on Taxation.

The measure is part of a series of tax reforms Democrats plan to raise funds for climate investments and a significant expansion of the U.S. social safety net, which is expected to cost up to $ 3.5 trillion.

The comprehensive corporate and personal tax reforms outlined on Monday would bring in nearly $ 2.1 trillion over a decade.

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