If we’ve talked or you follow my platforms, I’m sure you’ve heard me mention wash sale rules and how it currently does not apply to crypto currency. Well, be prepared for that to be put to rest.

House Democrats’ proposed tax-and-spend package would subject digital assets to two anti-abuse rules that already apply to stocks and other securities. The change would restrict tools crypto investors can currently use to hedge against potential losses and lower their capital gains taxes.

Now you’ve heard of a wash sale but allow me to refresh your memory. A wash sale is when you sell an asset and then buy it back within 30 days in order to claim a tax loss (capital losses). Since the IRS doesn’t treat crypto currencies, assets like Bitcoin or Ethereum as capital assets currently; we can sell these digital coins for fiat currency without feeling the wrath of the US government. The package they’re proposing would effectively eliminate this as an option to reduce your capital gain liability.

Now let’s talk about the other anti-abuse rule, the constructive sale rule. A Constructive sale rule is one of the most common IRS rules that triggers a tax liability. This rule states if you sell a position and then buy an identical one within 30 days, this would be considered a constructive sale which is typically deemed as a taxable event. This also didn’t apply to US taxpayers holding and trading crypto currencies.

Now don’t freak out just yet! These are only proposed regulations. There is a high likelihood that this will be passed very soon BUT I do have some good news. The wash sale rule, would come into effect January of 2022 so you still have time. The constructive sale rule, however, would go into effect the moment the bill is passed.

That’s all on the crypto tax news. Feel free to email me if you have questions.