President Joe Biden’s proposed budget, set to be unveiled on Thursday, will include a provision to close tax loss harvesting on cryptocurrency transactions. This move is intended to reduce wash sales trading by crypto investors, who sell any cryptocurrencies at a loss, claim the loss on their taxes, and then buy the same amount and type of cryptocurrencies again.
According to a White House official, the provision would be expected to raise up to $24 billion, which is part of the administration’s goal to lower the U.S. deficit by $3 trillion over the next 10 years. This move is not the first attempt by lawmakers to close this loophole; a bill was introduced in late 2021 with similar provisions to prevent investors from claiming a loss and repurchasing the same cryptocurrencies again.
The Biden administration has already passed one crypto tax-related legislation into law, the Infrastructure Investment and Jobs Act, which includes certain reporting rules for brokers facilitating crypto transactions. The definition of “broker” was seen as overly broad, but the U.S. Treasury Department has indicated that it would define the term more narrowly, although it has yet to publish formal guidance on the matter.
The proposed budget provision is part of the Biden administration’s efforts to increase tax revenue and address inequality in the tax system. According to Treasury Secretary Janet Yellen, “We are committed to working with Congress to increase tax compliance and raise revenue from those who are not paying their fair share.”
The crypto industry has reacted with mixed feelings to this proposal, with some viewing it as a necessary step towards tax compliance, while others believe it could stifle innovation in the sector. However, the proposed provision is subject to approval by both the House of Representatives and the Senate before going to the president’s desk for his signature.
The Biden administration’s proposed budget is expected to make significant changes in the country’s fiscal policies. With the current deficit at an all-time high, the administration is looking for ways to increase revenue while reducing expenses. The proposed provision to close tax loopholes on crypto transactions is just one part of this broader effort.
In addition to the proposed budget provision to close tax loopholes on crypto transactions, the Biden administration has been taking a closer look at the cryptocurrency space as a whole. In December 2021, President Biden signed an executive order directing the whole of government to work on cryptocurrency-related issues.
The order called for a coordinated government-wide approach to assess and mitigate risks associated with the use of cryptocurrencies, including illicit finance, cybersecurity threats, and environmental concerns. It also called for increased transparency and accountability in the crypto industry, including through the implementation of reporting requirements for certain crypto transactions.
These actions indicate that the Biden administration is taking a proactive stance towards regulating the cryptocurrency industry, which has been largely unregulated up until now. While some in the industry may view these moves as intrusive, others see them as necessary steps towards a more stable and secure crypto ecosystem.