Biden Administration Seeks to End Crypto Tax Subsidies and Fix the Loophole

UTC by Bhushan Akolkar · 3 min read
Biden Administration Seeks to End Crypto Tax Subsidies and Fix the Loophole
Photo: President Joe Biden / Facebook

The Biden administration seeks to terminate the tax-loss harvesting strategy for crypto investors which would help the White House save $31 billion over a ten year period.

On Thursday, March 9, the Biden administration proposed some important changes to crypto tax treatment in the federal budget. This could be a major game-changer for crypto investors putting an additional tax burden on them.

Currently, US crypto investors use the “Tax-loss harvesting strategy” which gives investors the ability to sell their digital assets at a loss and immediately buy the same crypto the next day. This allows investors to book losses and carry forward that to reduce their tax burden.

The Biden administration is now looking to eliminate tax deductions and the White House believes that this would help them save $31 billion over a ten-year budget window. Furthermore, the budget includes additional crypto-related line items such as information reporting by “certain financial institutions and digital asset brokers for purposes of exchange of information.”

Besides, it also proposes changes to mark-to-market tax rules by including digital assets. Furthermore, the budget asks US individuals with large holdings in foreign digital assets to report them to Internal Revenue Service (IRS).

The IRS currently treats cryptocurrencies as property, and not a security. As a result, they could easily bypass the “wash sale” rules.

30% Tax on Crypto Electricity Usage

The federal budget from the Biden administration seeks to target crypto miners. Crypto miners in the US might eventually face a 30% tax on electricity costs as the budget proposal from President Joe Biden aims at “reducing mining activity”.

On Thursday, March 9, the Department of the Treasury released a supplementary budget explainer paper that noted that any firm using resources would be “subject to an excise tax equal to 30 percent of the costs of electricity used in digital asset mining.”

Additionally, crypto miners will have to follow reporting requirements on the “amount and type of electricity used as well as the value of that electricity”. Crypto miners who acquire their electricity off-grid will still have to pay tax.

Explaining their decision, the Treasury noted that energy consumption of crypto mining operations could have “negative environmental effects”. “An excise tax on electricity usage by digital asset miners could reduce mining activity along with its associated environmental impacts and other harms,” it added.

Amid the current developments in the crypto space and the shutdown of crypto-friendly Silvergate Bank, the Biden administration is taking things much more seriously.

On Thursday, the crypto market plummeted sharply falling the move on Wall Street with Nasdaq Composite (INDEXNASDAQ: .IXIC)  dropping over 2%. The Bitcoin (BTC) price has tanked under $20,000 for the first time in seven weeks.

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