In President Biden’s budget is a provision to close a tax loophole related to cryptocurrency trading that would generate $24 billion in new revenue.
As of now, investors in cryptos do not face the same regulations as those in stocks or bonds, allowing them to take losses to reduce their tax bill while still remaining in the same investment.
The proposed measure would apply the wash-sale rule to digital assets, equalizing treatment with other forms of investments.
A House bill from last Congress had a similar aim, though it would have affected commodities, currencies, and digital assets. The IRS currently considers cryptocurrencies as property, meaning it does not have to follow the same protocols.
President Biden’s 2021 Infrastructure Act included a crypto-related tax provision that drew criticism from the industry. It defined a crypto broker broadly, allowing the IRS to target miners, developers, and others who may inadvertently fall under the category.
The Treasury Department later clarified that miners, validators, and other crypto users would not be labeled crypto brokers under the tax code.
The Budget’s release came shortly after Federal Reserve Vice Chair of Supervision Michael Barr spoke about the need for regulations in the crypto space that protect banks and investors, while not stifling innovation.
The Federal Reserve, FDIC, and Office of the Comptroller of the Currency have all expressed concern over the recent chaos in the industry, citing liquidity and risk management issues. Silvergate Capital, one of the top crypto banks, recently failed due to a series of withdrawals after FTX collapsed.
Fed Chair Jerome Powell expressed his worries to lawmakers earlier this week, saying, “What we’ve been doing is making sure that the regulated financial institutions that we supervise and regulate are careful and taking great care in the ways they engage with the whole crypto space.”
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