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13 Sep 2021

House Democrats eye wash sale rule for cryptocurrencies as part of trillion-dollar spending plan: report

Congressional Democrats in the House and Senate are solidifying plans for a multi-trillion-dollar spending package. Among the possible ways to pay for it, according to Politico: applying wash sale rules to cryptocurrencies.

Citing sources with knowledge of the plan being developed, Politico reported 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.

As Politico noted:

The Ways and Means Committee is also planning to call for a new 3 percent surtax on people making more than $5 million, sources familiar with Chair Richard Neal’s still-unreleased plan say, as well as increasing the top capital gains rate to 28.8 percent from 23.8 percent. Neal also wants to raise taxes on multinational corporations’ overseas profits, tighten estate tax rules and pare back deductions for some unincorporated businesses. And he wants new limits on supersized individual retirement accounts, additional restrictions on deductions companies take for highly compensated employees and new “wash sale” rules for people who own cryptocurrencies."

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

It's not clear based on Politico's reporting whether wash rules for cryptocurrencies will be included in the bill, which 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. 

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