Crypto tax loophole trumps Americas salvage wildlife law

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Better luck next time, mate. Photo: MPH Photos (Shutterstock)

A major U.S. wildlife conservation bill with bipartisan support failed at the last minute of negotiations in Congress as lawmakers could not agree on closing a massive tax loophole that benefits wildlife. cryptocurrency traders.

The legislation, known as the Recovering Americas Wildlife Act (RAWA), would have committed $1.3 billion a year over the next decade to programs to rebuild and protect animal habitats. It was the largest piece of legislation devoted to wildlife conservation since the Endangered Species Act of 1973.

The wildlife bill had enough support to pass through Congress, but was delayed because some lawmakers insisted on offsetting the expenditures with equivalent cost savings or tax revenue. Earlier this month, a bipartisan group of senators came together around the idea of ​​raising money by changing how the United States taxes crypto and other digital assets, according to E&E News.

This change would have ended a legal tax avoidance strategy widely used by crypto traders to generate dubious losses with so-called wash sales, by selling tokens and buying them back immediately. Among those using the loophole was bankrupt crypto exchange FTX, Quartz previously reported.

Billions of dollars in missed tax revenue

According to a Congressional estimate in 2021, closing the crypto washout sale loophole would net the United States $16.7 billion over 10 years. That’s more than enough to pay for RAWA’s vision to fund state wildlife agencies and Native American tribes to protect endangered habitats. and endangered species.

But neither RAWA nor the crypto tax change is included in the spending bill, which was made public on December 20 just hours before its first vote in the Senate. It is expected to be the last major bill passed by Congress this year. And while he enjoys bipartisan support, wildlife conservation is less likely to garner attention when Republicans take control of the House in January.

It’s not clear what or, really, who killed the legislation. E&E, which covers lobbying on energy and environmental issues, reported ahead of the release of the spending bill that lawmakers were squabbling over which specific assets and products would be subject to new restrictions on wash sales.

RAWA sponsors in the Senate did not respond to requests for comment on the status of the legislation.

How the crypto wash-sale loophole works

To understand why the loophole is so glaring, consider this hypothesis we previously put forward:

Let’s say you bought a bitcoin for $40,000 earlier this year. Maybe you watched the Super Bowl commercials and came away thinking that fortune smiles on the brave. And that was certainly the case until the middle of the year, when bitcoin started falling sharply; it is now trading around $17,000. But you think bitcoin still has a bright future, so you commit to holding the position for the long term.

Here’s the totally legal tax move: rather than just holding your bitcoin for life, you sell it for $17,000 and then immediately buy it back. You have realized a loss of $23,000, which can be used to offset other income and reduce your taxes. And yet, you haven’t lost anything at all, really: you still own a bitcoin and can enjoy any future gains from the investment. Meanwhile, you pay less tax and invest the savings.

After a two-year bull run, 2022 has been a brutal year for crypto traders. The total market capitalization of tokens tracked by Coingecko has fallen by 64% since the start of the year. If your stock portfolio was down by two-thirds, you would actually have to sell the stock in order to incur a loss on your taxes this year. But crypto traders can post the loss and keep the asset, using wash sales.

By preserving the loophole, Congress has just brightened an otherwise bleak year for the crypto industry, at the expense of billions of dollars in tax revenue and the largest wildlife conservation effort in the Americas in 50 year.

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