Legislation to impose 'wash sale' rule on crypto currencies

House Democrats in the US are putting forward legislation that will help close a tax loophole for crypto currency investors

House Democrats in the US are putting forward legislation that will help close a tax loophole for crypto currency investors, making it so crypto is subject to anti-abuse rules applying to stocks, bonds and other securities, CNBC reported.

The report says the bill would put forward a ‘wash sale’ rule for commodities, currencies and digital assets, per an outline from the House Ways and Means Committee.

Wash sale rules make it so investors cannot reap tax benefits from a losing investment and then buy back the same asset right after.

The IRS currently looks at crypto as a property rather than a security. Because of that, the asset class is largely able to escape the rule.

Thus, crypto investors can sell crypto for a loss, then claim a tax benefit — with the loss making it so capital gains tax on winning investments is cut down. And then after that, they can buy back the crypto quickly, which they’d sold to capture at any rebound in price. The volatility of much crypto currency makes this a likely prospect.

The report finds that subjecting crypto and other such assets to wash sale rules would raise an estimated $16.8 billion in funds in the next decade.

The proposal from the Democrats would take effect on sales after Dec. 31 this year. This measure is also among a number of tax reforms from the Democrats designed to raise money for climate investments. That comes after a wide expansion of the U.S. social safety net which is expected to cost up to $3.5 trillion.

As global governments and agencies reckon with the possibilities and risks in crypto, the U.S. Treasury has been looking into both the risks and benefits of stablecoins. The agency is looking at whether stablecoins could be regulated as well as if they could be backed by traditional assets and how they could be structured and used.