US politicians suggest including digital assets in the ‘wash sale’ regulation and increasing capital gains tax.

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If implemented, the bill would increase the capital gains tax rate for “certain high income persons” to 28.8 percent while closing the “wash sale” loophole for cryptocurrency users.

Democrats in the United States House of Representatives have proposed tax initiatives to support a $3.5 trillion spending package that could harm cryptocurrency users.

According to a document released by the House Committee on Ways and Means on Monday, the proposal would increase the tax rate on long-term capital gains from the existing 20% to 25% for “certain high income individuals.” The proposed revisions appear to include a 3.8 percent surtax on nett investment income, raising the U.S. capital gains and dividends tax rate for wealthy crypto users to 28.8 percent.

Furthermore, the tax plan would include digital assets in the “wash sale” regulations, which ban investors from claiming capital gains deductions on some assets repurchased within 30 days of a sale, which were previously only applied to stock and other securities. Existing IRS tax laws treat cryptocurrency as property in wash sales, which some crypto users have used to avoid capital gains, whereas the proposal from US senators would shut this loophole.

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If passed and signed into law, the bill would oblige cryptocurrency users to submit taxes under the new wash sale regulations beginning on December 31, while the capital gains tax rate would apply to transactions done after September 13. The bill for the $3.5 trillion spending package, however, has not yet been finished. President Joe Biden’s administration proposed in April hiking the capital gains tax rate for wealthy persons to 43.4 percent.

The House Democrats’ tax plan comes after the Senate passed an infrastructure bill that proposed tighter controls for enterprises dealing with cryptocurrencies and expanded reporting requirements for brokers. Many Democratic and Republican lawmakers have pushed for amending the language in the bill to clarify the role of cryptocurrencies, while the House is scheduled to vote on the proposal by Sept. 27.

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