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Crypto investors in the US have to prepare for new tax rules



A new bill will be introduced in the US Congress aimed at treating digital currencies like stocks and other securities. If a majority supports the bill, crypto investors will have little time to take action against a possible tax hike.

The Democrat-driven bill proposes a tax and spending package that also includes multiple regulations against digital assets. Stocks and other securities will also be affected.

The enactment of the laws will prevent investors from using crypto tools to hedge against future crypto losses or lowering capital gains tax on digital assets. With the law, a requirement will come into force that calls for “constructive sales rules”.

Democrats are pushing for new rules for cryptocurrencies

However, crypto investors should be more concerned about the proposed regulations applying "wash sale" rules. These should come into force next year.

These rules are designed to prevent crypto investors from claiming deductions when selling a digital asset like Bitcoin at a loss. Provided they purchased a similar digital asset within 30 days (before or after the sale).

The Democrats want to enforce these new crypto rules - and a host of other tax law changes - before investors, individuals and businesses alike have time to prepare for the tax plans.

But there is a (small) window that investors can take advantage of.

Crypto investors have 2 months to take advantage of tax savings

According to Shehan Chandrasekera, Tax Strategy Manager at CoinTracker, crypto investors can avoid being hit by the looming tax plans. To do this, you have to liquidate your opposing positions or sell one of your positions.

Chandrasekera said that investors who sell their digital assets at a loss and then buy them back at lower prices in order to mitigate future capital gains taxes only have two months to aggressively exploit this loophole. After that, the “wash sale” rule comes into force.

However, Lisa Zarlenga, partner at Steptoe & Johnson LLP, warns crypto investors to exercise caution when selling cryptocurrencies in December and through to early January.

She emphasizes that selling digital currencies at a loss in early January can trigger the rules for the “wash sale”. Especially if an investor bought a similar digital asset less than thirty days earlier towards the end of the year.

On Thursday, the tax committee estimated that passing both wash sale and constructive sale laws will help raise approximately $ 16.8 billion annually.

The largest US-based crypto exchange Coinbase plans to urge the IRS and Treasury Department to pass "sensible" crypto regulations. The company believes that the "Wash Sale Rules and Constructive Sale Rules" shouldn't be too broad. Because otherwise, they would stifle the innovation ... "

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