The extremely controversial forms and infrastructure agents are examined by the ways and means committee. The Commission of ways and means is the main committee of the prosecutor of the United States House of Representatives. The Committee has jurisdiction on all taxes, tariffs and other relevant measures and a number of income management programs. And it means that the Summary report published on 13 September 2021 will be said about the cryptocurrency of sending to the wash sale rule. Cryptocurrencies are currently not subject to the wash sale rule at the moment. This language has allowed the holders of crypto to generate tax losses (without economic loss) and reduce the tax bill.
What is a Wash sale?
According to §1091 of the IRS code, a wash sale occurs when a person sells an action or security for a loss and buys within 30 days before or after this sale “essentially identical” action or security or acquire a contract or an option . The current language offers the ruler only “inventory and values” to the wash sale rule. Since cryptocurrencies are treated as properties of the IRS 2014-21, they are not subject to the wash sale rule.
Let’s see how the wash sale rule works with stocks and cryptocurrencies next. Suppose Jennet buys a part of the company A of $ 2,000 on January 10, 2021. On January 15, 2021, the company is an action with a much less than $ 1,200 US dollars for sharing marketing. If Jennet sells its position and bought another part to 1,200 USD, he can not claim the capital loss of $ 800 ($ 2,000 – $ 1,200) due to the wash sale rule. Therefore, the loss of 800 US dollars is rejected in the wash sale rule. Replacement company in stock with Bitcoin (BTC) or other cryptocurrency . Here, Jennet could claim the loss of 800 US dollars as a loss of capital because cryptocurrencies are not subject to the wash sale rule.
This loophole allows crypto holders to trade cryptocurrencies which act just like “stocks”, but under the tax treatment of “property” and generate losses more aggressively by skipping the 30-day period.
Implications of the Ways and Means Summary
Sec. 138153 of the Ways & Means summary document plans to subject digital assets to wash sale rule.
“This section (Sec. 138153) includes commodities, currencies, and digital assets in the wash sale rule, an anti abuse rule previously applicable to stock and other securities. The wash sale rule in section 1091 prevents taxpayers from claiming tax losses while retaining an interest in the loss asset”
The Ways & Means Committee’s reasoning behind the proposal is clear. Cryptocurrencies did not exist when the congress enacted §1091. So, it doesn’t have any reference to digital assets. Therefore, cryptocurrency holders have no legal requirement to apply this provision although cryptocurrencies work very similar to stocks & securities. Closing this loophole would generate the additional tax revenue needed to fund the massive Infrastructure bill.
Closing this loophole doesn’t mean that crypto taxpayers are completely missing out from the tax benefits related to wash sale losses. The wash sale rule doesn’t allow you to deduct losses on transactions that are considered wash sales. Instead, it allows you to add disallowed losses to the cost basis of the coin. Since you increase the cost basis, you would realize less taxable gains when you later sell the coin for a profit. Thus, crypto users will only experience a deferral of a tax deduction, not a complete elimination of a tax deduction.
Suppose Jennet’s BTC transaction in the previous example is a wash sale. In this case, Jennet can not derive the capital loss of 800 US dollars over his taxes. It would increase the cost base of their newly purchased BTC to $ 2,000 ($ 1,200 + $ 800). Always sell this coin for $ 10,000. In this case, she would find an advantage of $ 8,000 ($ 10,000 – $ 2,000) while counting the loss of 800 US dollars rejected under the wash sale rule. (If it is not the basis for the loss The renovated wash sale increased, this would be a higher capital gain of 8,800 US dollars (10,000- $ 1,200) .
Unfortunately, the burden of tracking wash sales and adjusting basis accordingly will fall on cryptocurrency exchanges which will be subject to 1099-B reporting under the Infrastructure bill. Taxpayers will also have a responsibility to track wash sales occurring across multiple exchanges and wallets.
Timing
If the Ways & Means Committee suggestions are adapted, cryptocurrency trades occurring after December 31, 2021, will be subject to the wash sale rule.
