U.S. President Joe Biden’s upcoming budget proposal has a few surprises for crypto traders and investors, including a proposed doubling of capital gains for certain investors and a crackdown on crypto wash sales.
The Biden administration is set to release its fiscal 2024 budget plan on March 9, which is reportedly aimed at reducing the deficit by almost $3 trillion over the next decade. It also includes changes to crypto tax treatment with the aim of raising around $24 billion, according to newsreports.
One of these proposals includes an end to a strategy in which a crypto trader sells assets at a loss for tax purposes, known as tax-loss harvesting, before repurchasing them immediately after, according to The Wall Street Journal.
President Biden's 2024 budget plan will seek to save hundreds of billions of dollars by lowering drug prices and raising some business taxes https://t.co/oKDdy8h5cG— The Wall Street Journal (@WSJ) March 8, 2023
Such a strategy is not permitted when stocks and bonds are involved under current wash sale rules. However, crypto is currently not under these same rules, as digital assets have not been classified as securities.
Now it appears that the U.S. government is looking to change that.
Speaking to Cointelegraph, Danny Talwar from crypto tax software firm Koinly commented:
“This is an inevitable consideration for the U.S., which, if implemented, will see it on par with other jurisdictions such as Canada and Australia, where crypto wash sales apply.”
“If the rule is applied, the timing is significant as many crypto holders who entered the crypto space on the back of 2021 market peaks are suffering from heavy losses,” he added.
Related: What is crypto tax-loss harvesting, and how does it work?
The Biden budget also proposes to nearly double the capital gains tax rate for investors making at least $1 million to pay 39.6% on long-term investments, up from the current 20% tax rate. It also plans to raise income levies on corporations and wealthy Americans, according to Bloomberg.
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
Update Mar. 9, 4:19 am UTC: Added clarification that the increased capital gains tax rate applies to a certain subset of investors, according to the Bloomberg report.