Tucked inside the House’s version of the plan passed in November were two measures that would limit tools those investors can currently use to lower their taxes -- restrictions that already apply to stocks and other securities. The provisions were retained in an unfinished of the Senate Finance Committee’s portion of the plan released earlier this month.
Biden’s $1.75 trillion tax and spending plan hit a wall Sunday when moderate Democratic Senator Joe Manchin announced his opposition after months of negotiations between lawmakers and the White House. There’s still a possibility that Democrats move a scaled-back version of the plan next year, but it’s unclear where or if the crypto measures fit into that.
“The bill stalling is a win for crypto investors,” said Lisa Zarlenga, a partner at the law firm Steptoe & Johnson LLP, who advises clients on crypto-related tax issues. “But as you know, once legislative language is out there, it never really goes away,” she said, suggesting the proposals could resurface at a later date.
One of the proposed changes would impose capital gains taxes when investors take offsetting short and long positions on a digital asset and the other would bar investors from claiming a deduction when they sell their crypto at a loss if they buy a “substantially identical” asset within 30 days before or after the sale.
Subjecting digital assets to these “constructive sale” and “wash sale” rules were estimated to bring in about $16.8 billion over 10 years to help pay for new social spending initiatives.
