On Thursday, proposed legislation was unveiled as part of Democrat’s $1.75 trillion social and climate spending plan, closing a tax loophole for cryptocurrency investors. According to an outline published by the house rules committee, the build back better Act would subject crypto transactions to “wash sale” rules and anti-abuse measure that currently applies to stocks, bonds, and other securities. The new proposal would apply after Dec. 31, and it means that cryptocurrency assets such as bitcoin, ethereum, dogecoin, Cardano, and many other cryptos would be subject to the rules. They prevent investors from claiming tax benefits from an investment loss and quickly buying back that asset, effectively retaining ownership.
The rules committee proposed its near-final legislative draft after the white house unveiled a policy framework Thursday morning, the results of months of negotiations among moderate and progressive Democrats. Although the legislation may still evolve and its success isn’t guaranteed. Given unified Republican opposition, Democrats will need nearly full party support in both chambers for the measure to pass. Key holdouts haven’t publicly committed to voting for it. Last month, a house way and Means Committee tax proposal also sought to subject digital currencies to wash sales. The IRS treats crypto as property, not security, which is how the asset class escapes wash sale rules under present law.