Can Crypto be Taxed

Crypto taxation passes with the House infrastructure bill, time to sort those Shiba Inu coin gains

Congress finally passed the new infrastructure bill with its provisions to tax cryptocurrency transactions essentially unchanged. Pending IRS and Treasury Department guidance, any digital asset class deal above US$10,000 may now have to be reported by the exchanges for tax purposes.

The U.S. House of Representatives just passed the US$1.2 trillion bipartisan infrastructure bill and sent it for President Biden to sign into law. With it, those recent rumors that the White House is preparing to regulate the cryptocurrency trading market may have materialized in a roundabout manner. The bill is making crypto news today because its provisions seem to be mandating a cryptocurrency transaction tax. Besides the parts that deal with renovating physical assets like roads and bridges, some govern digital and financial infrastructure.

Those are precisely the ones that the Coinbase CEO was railing against in the summer because they could treat cryptocurrency exchanges, validators, and even miners or developers, as traditional finance brokerages. They would thus be mandated to report to the IRS every digital asset transaction above the US$10,000 threshold, allowing the government to raise US$16.8 billion in the process. Yes, those oversize Shiba Inu coin profits could end up being taxed, depending on how the infrastructure bill is mandated after President Biden signs it into law.

Bloomberg, which has been a proponent of the crypto tax provisions in the bill from its onset, just warned crypto investors that they have about two months to get their taxation ducks in a row:

A provision applying “constructive sale” rules to digital assets would take effect as soon as the bill is signed into law. The rules would kick in when investors take offsetting short and long positions on an asset to reduce the risk of losing money. Once the offsetting positions are taken, they would have to pay capital gains taxes on the long position as if it was sold - even if it wasn’t. Cryptocurrency investors would also have to worry about “wash sale” rules beginning in 2022. Those rules bar investors from claiming a deduction when they sell an asset at a loss if they buy a “substantially identical” asset within 30 days before or after the sale.

There will still be time before the end of the year for cryptocurrency investors to review and liquidate their hedges in a way that will minimize any capital gains tax they would be subject to under the new reporting laws. It is still up to the Treasury Department and the IRS to clarify the parts in the infrastructure bill that refer to digital assets taxation, though. Coinbase asks for that guidance to be "sensible," perhaps referring to its regulatory framework proposal issued in mid-October when it became clear that the infrastructure bill will pass along with the murky crypto taxation provisions.

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In fact, the traders who are making all that money didn’t even need a computer

Build Back Better Act would close tax loophole for crypto investors

• The Build Back Better Act would subject cryptocurrency transactions to wash sale rules, anti-abuse rules that currently apply to stocks and bonds, starting in 2022.
• The near-final legislative draft, issued Thursday after the White House unveiled a policy framework, may still change and its success isn’t guaranteed.
• The wash sale measure would eliminate a dual benefit crypto investors currently get.
• Proposed legislation unveiled Thursday as part of Democrats’ $1.75 trillion social and climate spending plan would close a tax loophole for cryptocurrency investors.
• The Build Back Better Act would subject crypto transactions to “wash sale” rules, an anti-abuse measure that currently applies to stocks, bonds and other securities, according to an outline published by the House Rules Committee.
• As a result, bitcoin, ethereum, dogecoin and other crypto would be subject to the rules. They prevent investors from claiming tax benefits from an investment loss then quickly buying back that same asset, effectively retaining ownership.
• Related: Will Crypto Rise Again