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According to reports, the Biden administration plans to apply the wash sale rule to crypto, putting an end to a common tax strategy used by traders. This strategy involves selling and then immediately buying digital assets, which would no longer be allowed under the proposed rule.
The Biden Administration's Budget Proposal For Crypto
As part of U.S. President Joe Biden's budget proposal for fiscal year 2024, there are some surprising changes in store for crypto traders and investors. These include a proposal to double capital gains for certain investors and a crackdown on crypto wash sales. The budget plan, set to be released on March 9, is aimed at reducing the deficit by almost $3 trillion over the next decade and is expected to raise approximately $24 billion through changes in crypto tax treatment, according to news reports.
Plans to End "Tax-Loss Harvesting"
The Wall Street Journal reports that one of the proposals put forth by the U.S. Government aims to put an end to "tax-loss harvesting," a strategy used by crypto traders to sell assets at a loss for tax purposes before immediately repurchasing them. This strategy is currently not permitted when it comes to stocks and bonds due to wash sale rules, but digital assets are not subject to the same regulations as they have not been classified as securities. It seems that the U.S. government is now considering changing this by including digital assets under the same wash sale rules as stocks and bonds. Danny Talwar, a representative from Koinly, a company specializing in crypto tax software, commented on the matter, stating that the proposed wash sale rule for crypto is a consideration that the U.S. government has been anticipating. If implemented, this would bring the country in line with other nations such as Canada and Australia, where crypto wash sales are already in effect. He also noted that the timing of the proposed rule is significant as many crypto holders who entered the market during the 2021 peak are currently facing significant losses.
Other Proposed Changes In The Budget
In addition to the proposed wash sale rule, the Biden budget also includes plans to increase the capital gains tax rate for investors who earn at least $1 million, doubling it to 39.6% for long-term investments from the current 20% rate. Furthermore, the budget proposes raising income levies on wealthy Americans and corporations, as per Bloomberg reports.