By
Mayowa Adebajo
February 21st, 2024
This tax plan from House Democrats follows the infrastructure bill recently passed in the Senate, suggesting implementing stricter rules on businesses handling cryptocurrencies and expanding reporting requirements for brokers.
Democrats in the United States lower chamber have proposed ‘wash sale,’ tax initiatives to fund the $3.5 trillion spending expenses which could also potentially affect crypto users within the country.
In a document released by House Committee Ways and Means on Monday, the tax initiative would help increase the tax rate on long-term capital gains to 25 percent from 20 percent for specific high-income earners. This would also apply to the Surtax on net investment income, increasing the United States capital gains and dividends tax rate from 25 percent to 28.8 percent for only wealthy crypto users.
Similarly, the tax initiative would include cryptocurrencies or digital assets in the “wash sale.” Before now, the rule used to be for stock and other securities alone but now intends to include virtual assets. This is an effort to fight avoidance of capital gains, the loopholes created by the existing tax laws under the IRS that consider crypto assets as property.
What Is the ‘Wash Sale’ Rule?
The Wash sale rule has been clearly explained by the IRS code. It occurs when a person sells a stock or security at a loss and within a month before or after this sale, purchases a significant similar product, or acquires a contract or option to do so. Wash sale does not allow individuals to claim any loss that occurs in this process.
However, at this moment, cryptocurrency is not subject to the wash sale rule, but the House Committee on Means and Ways have suggested the inclusion of crypto into it.
According to Sec. 138153 of the Ways & Means report subjecting digital assets to the wash sale rule, “This section (Sec. 138153) includes commodities, currencies, and digital assets in the wash sale rule, an anti-abuse rule previously applicable to stock and other securities. The wash sale rule in section 1091 prevents taxpayers from claiming tax losses while retaining an interest in the loss asset.”
Peradventure, the house approves it; it would mandate crypto users to report taxes, starting from Dec. 31, according to the new wash sales rule. The capital gains tax rate would take effect on post-September 13 transactions.
This tax plan from House Democrats follows the infrastructure bill recently passed in the Senate, suggesting implementing stricter rules on businesses handling cryptocurrencies and expanding reporting requirements for brokers. However, several Democratic and Republican lawmakers proposed amendments to the language in the bill to clarify the role of cryptocurrencies.
The House will vote on the proposal later this month.