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The proposed Biden budget plan would close the current harvesting loophole on crypto tax losses, reducing wash sales trading.
According to reports, US President Joe Biden’s new budget plan could close tax loss harvesting on crypto transactions. A White House official confirmed that the budget, set to be revealed today, will include a tax provision meant to reduce crypto wash sales trading. This wash sales trading by crypto investors is a tax loss harvesting loophole that facilitates a peculiar scheme. Investors can offload any digital currency at a loss and claim this loss on their taxes. After doing so, these crypto investors can then buy the same amount and volume of digital currencies off the market again.
Reports further state that Biden’s proposed budget should generate up to $24 billion.
This development is not the state capital’s first attempt to close the loophole that sees investors claim a loss only to repurchase the same crypto. Federal legislators introduced a similar bill in September 2021 to address the same issue.
However, Delancey Wealth Management founder and certified financial planner Ivory Johnson previously argued against the bill’s applicability. In Johnson’s opinion, digital currencies were dissimilar to the point that selling Bitcoin and quickly buying Ether would not violate the rules. At the time, the Delancey Wealth Management founder also said:
“The similarities start and end with the coins being exchanged on a blockchain. Using that logic, stocks traded on an exchange, NYSE or otherwise, are not considered one and the same either. Stated plainly, Bitcoin is to Ether what Gold is to Visa — they’re not ‘substantially similar’ and should not, in my opinion, trigger the wash sale rule.”
More on Biden Crypto Transaction Budget & Similar Developments
The US president’s proposed budget seeks to provide detailed insight into his fiscal priorities. One major priority is to potentially lower the deficit by $3 trillion over the next decade. However, any budget requires vetting by the US Congress before arriving at Biden’s desk for his signature.
As it stands, Biden’s proposal is unlikely to gain any traction with legislators as Republicans would likely oppose many of his plans. The budget also likely includes ideas not signed into law when Democrats controlled the Senate and House.
Nonetheless, Thursday’s budget could begin a lengthy negotiation phase among federal lawmakers. According to White House officials, the budget will call out large corporations such as drug companies and the oil industry.
Biden’s team has already passed a crypto tax-related bill, the Bipartisan Infrastructure Framework, into law. This legislation, which later became the Infrastructure Investment and Jobs Act, was written into law in 2021. The bill comprised a controversial tax provision that imposed specific reporting rules on crypto transaction-facilitating brokers.
At the time, many deemed the “broker” definition overly broad to the point where it affected miners. Meanwhile, crypto miners and several other entities do not directly facilitate transactions or collect personal data as imagined by traditional brokers.