Democrats Propose New Rules for Crypto in Trillion Dollar Spending Plan

Divya  |  Sep 14, 2021

The crypto industry is once again staring at the prospect of new tax regulations in the US. Congressional Democrats in the country are proposing a $3.5 trillion spending package, with a provision to raise $16 billion from digital assets through the wash-sale rule.

Democrats Looking to Raise Another $16B from Crypto in New Spending Package

According to a Bloomberg report, House of Democrats unveiled their plans to finance the $3.5 trillion spending package recently. The lawmakers have pushed for $2 trillion tax hikes, which include $16 billion derived from adding commodities, currencies, and digital assets to the wash sale rule.

Right now, crypto investors in the US have to pay a long-term capital gains tax after cashing out tokens that they’ve held for more than a year. If their holdings are sold in less than a year, they’re required to pay a higher short-term gains tax. As with stock markets, investors are allowed to claim a deduction when they sell their assets at a loss.

However, if they want to repurchase an asset, investors have to wait for 30 days. Failure to comply with this restriction leads to a “wash sale.”

Currently, the Internal Revenue Service defines cryptocurrency as property and therefore does not impose this rule on crypto investors. As a result, digital asset buyers can cash out their holdings, get a deduction, and repurchase cryptocurrencies at lower prices.

Coin Center and Blockchain Association Agree With the Proposal

For now, Blockchain Association and Coin Center have indicated that they are comfortable with the new proposal. A Spokesperson for Coin Center classified it as “straightforward” and said the group won’t object to its approval.

Meanwhile, Blockchain Association’s executive director Kristin Smith said:

“We are comfortable with this provision provided it only applies existing rules to crypto assets and doesn’t lead to other unintended consequences.”

Smith emphasized that it would be better for the industry if taxes on cryptocurrencies are dealt with comprehensively, instead of a piecemeal approach.

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