The new addition of regulations to the House tax infrastructure plan erases the “wash sale” loophole for crypto investors.
Yet again the question of regulations from U.S. officials plagues the crypto industry. On Sept 13, House Democratic released a proposal to the ominous tax infrastructure bill which could raise billions of dollars but restrict investors.
Included in the $2 trillion in tax hikes, is the proposal which adds commodities, currencies, and digital assets to the “wash-sale” rule. If passed, it would raise close to $16 billion in the coming decade.
The new addition closes a loophole employed by some crypto investors. The loophole helps investors bypass capital-gains taxes when selling at a loss. For this to happen, investors must wait 30 days before repurchasing the shares or making an equivalent investment. Otherwise, it is a “wash sale,” which is not considered a capital-gains deduction.
Moreover, crypto currently falls under property according to the Internal Revenue Service (IRS). Therefore it is not subject to such rules. As it stands investors in digital assets can sell and buy cryptocurrencies and claim deductions. Though this new proposal changes that.
Kristin Smith, the executive director of the Blockchain Association told Bloomberg, “We are comfortable with this provision provided it only applies existing rules to crypto assets and doesn’t lead to other unintended consequences.”
Regulations pile up
This is the latest crypto regulatory news out of Washington in recent months. Over the summer the cryptocurrency industry felt panic at the initial tax infrastructure bill which broadly classified the term “broker.” It grouped almost every actor within the community under the same reporting bracket.
If passed as is, it has industry-rattling potential. Many inside the industry, including Coinbase CEO Brian Armstrong, called the bill detrimental to future innovation. Others outside of the space like Senator Pat Toomey stood on the side of crypto. Despite the industry pushback, the Senate passed the bill through to the House of Representatives.
Initially, the section with a mention of the cryptocurrency industry was small in size. However, this additional section, although minor, adds to the growing pile of red tape. According to House Speaker Nancy Pelosi, officials commit to a finished crypto tax proposal by Sept 27.
Along with regulations, the crypto found itself the target of stringent surveillance from the U.S. Security and Exchange Commission (SEC). Recently two major crypto-centric companies, Coinbase and Uniswap, are facing SEC probes.