The U.S. House of Representatives committee proposes the “wash sale” rule for cryptocurrencies. This bill seeks to close a significant cryptocurrency tax dodge mechanism. But, the wash sale rule will not apply to cryptocurrencies at this time because the IRS currently treats these digital currencies as property.
What Is The New Proposal In Crypto World?
The Ways and Means Committee is taking a close look at the divisive Income Tax cut program. This committee is responsible for drafting the House of Representatives’ tax legislation. Several other income programs are also under the Committee’s jurisdiction. This includes all taxes, tariffs, and other revenue-raising measures.
On Monday, the House’s top tax-writing committee, the Committee on Ways and Means, proposed that cryptocurrencies must be included in the wash sale rule. If adopted, the restrictions will apply to all crypto trades made after December 31.
The IRS code defines ‘wash sale’ in section 1091. It says when a person sells a stock at a loss and then buys an identical stock within 30 days of making the sale, it benefits them.
The wash sale rule is:
“This section 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.”
Why Is This Rule Necessary?
The wash-sale rule was introduced to dissuade people from selling assets at a loss purely to take advantage of a tax break. It’s called a wash sale when someone sells a purchase at a loss and then buys the same or other collateralized debt obligations that are substantially identical within 30 days.
Shehan Chandrasekera, head of Tax Strategy at Cointracker, stated that the committee is attempting to close down a massive crypto tax avoidance scheme with this wash sale proposal. As cryptocurrencies are considered property under the Internal Revenue Service’s 2014-21 tax code, he explained, they are exempt from the wash sale rule.
This makes it possible to take advantage of crypto’s inherent losses more aggressively than that which is possible with traditional investments like stocks. People will not be required to wait for 30 days anymore to get over their losses. That’s why the Ways & Means Committee is working to make the wash sale rule apply to cryptocurrency.
What We Think
If cryptocurrency is supposed to be the future model of financial transaction, we guess it needs stronger regulations and legal protocols. So, if the US lawmakers have decided to subject it under the ‘wash sale’ rule, it is probably for the best. But, we still don’t have any confirmed news on how this rule will impact crypto investors.