Democrats eye expanded rules for cryptocurrencies as part of trillion-dollar tax and spending plan
Congressional Democrats in the House and Senate are solidifying plans for a multi-trillion-dollar spending package.
Citing sources with knowledge of the plan being developed, Politico reported Monday that Richard Neal, chairman of the House Ways and Means Committee, wants to include a series of measures to pay for the spending package, which could weigh in at as much as $3.5 trillion.
A Ways and Means explainer document obtained by The Block mentions the wash sale rule and its application to cryptocurrencies. It notes:
"This section includes commodities, currencies, and digital assets in the wash sale rule, an antiabuse 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. The amendments made by this section apply to taxable years beginning after December 31, 2021."
Neal's office did not immediately respond to a request for comment by press time.
Under US rules, a taxpayer can't deduct the losses from wash sales, defined as when a stock or security is sold and then, within 30 days, "substantially identical securities" are then purchased. The idea behind wash sale rules is to prevent their use for so-called tax harvesting, a practice employed to offset gains elsewhere. Currently, cryptocurrencies aren't subject to these rules — a state of affairs that critics say constitutes a loophole.
The W&M document also highlights the application of constructive sales rules to digital assets.
"This provision includes digital assets in the constructive sale rules, anti-abuse rules previously applicable to other financial assets. The constructive sale rules in section 1259 treat the adoption of certain offsetting positions to previously owned positions as sales of the previously owned position. These rules prevent taxpayers from locking in investment gains without realizing taxable gain. The amendments made by this section apply to taxable years beginning after December 31, 2021," the document notes.
The final bill is expected to be unveiled before the end of the month. Congressional leaders have been tight-lipped about the spending package ahead of what many expect to be a protracted fight over tax and spending policies.
This report has been updated with new information from a Ways and Means Committee document, link included.