Biden’s administration proposes new rules for the crypto sector.
US President Joe Biden’s administration has been planning to introduce a double capital gain tax on crypto investors and apply the “wash sale” rule to cryptocurrency.
The changes, included in the 2024 proposed president’s budget, will bring an end to the crypto tax strategy in which traders avoid tax by selling crypto assets at a loss and repurchasing them immediately, dubbed tax-loss harvesting. Investors using this strategy effectively retain ownership of their traded assets.
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The current “wash sale” rules prohibit to use of the strategy in stock and bond investments. However, the regulation has not been applied to cryptocurrencies as these assets have not been classified as securities. The IRS still classifies crypto as property.
Another key measure included in the budget is the doubling of capital gain for crypto investors. However, this rule will only apply to crypto investors who earn more than $1 million from their crypto trades. The move will raise the tax for long-term crypto investment to 39.6% from the current rate of 20%.
According to a report, the new budget aims to raise approximately $24 billion with the changes in the cryptocurrency tax policies.
The move by President Biden’s administration is part of the effort to raise revenue from corporations and wealthy Americans. It also aims to bring down the fiscal deficit by about $3 trillion over the next ten years.
Weighing in on the matter, an expert from a crypto tax software firm Koinly, Danny Talwar, said:
If the rule is applied, the timing is significant as many crypto holders who entered the crypto space on the back of 2021 market peaks are suffering from heavy losses.
The House of Democrats proposed a similar bill in 2021. It is worth noting that during the same year, the president’s team drafted legislation dealing with crypto tax laws.