Crypto traders and investors should brace themselves for some surprises in U.S. President Joe Biden’s upcoming budget proposal. The proposal includes a plan to double the capital gains tax for certain investors and to tighten regulations on crypto wash sales.
The Biden administration is expected to unveil its fiscal 2024 budget proposal on March 9th, which seeks to reduce the deficit by nearly $3 trillion over the next decade. The plan also includes provisions for changes to the taxation of cryptocurrencies, which are projected to generate approximately $24 billion in revenue, according to reports.
One proposal under consideration is to eliminate a popular tax strategy used by crypto traders called tax-loss harvesting, where an individual sells assets at a loss for tax purposes before repurchasing them immediately after.
The current wash sale rules do not allow for such a strategy when it comes to stocks and bonds. However, digital assets such as cryptocurrencies are not subject to these same rules, as they have not yet been classified as securities.
Biden proposing to double capital gains taxes from 20 to 40% and not allowing for tax loss harvesting on #bitcoin …. WTF… pic.twitter.com/SnJNglpoAA
— Lark Davis (@TheCryptoLark) March 9, 2023
The proposed Biden budget includes a plan to increase the capital gains tax rate for investors earning at least $1 million, almost doubling the rate to 39.6% on long-term investments, up from the current rate of 20%. Additionally, the budget aims to increase income taxes for corporations and wealthy Americans, according to Bloomberg.
The Biden administration has already enacted one piece of cryptocurrency-related tax legislation into law. In 2021, the Bipartisan Infrastructure Framework, which was later renamed the Infrastructure Investment and Jobs Act, included a contentious tax provision that would impose reporting requirements on brokers who facilitate cryptocurrency transactions.
The definition of “broker” was criticized by many in the industry for being too broad, to the extent that even miners and other entities that don’t directly facilitate transactions or collect personal data from transaction participants could be considered brokers.
