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Lawmakers move to close $16.8 billion crypto tax loophole

September 14, 2021, 6:00 PM UTC

Cryptocurrency investors could lose a valuable loophole that dramatically reduced their tax bill if House Democrats get their way.

Lawmakers have proposed a bill that will make holders of Bitcoin, Ethereum, Dogecoin, and other cryptocurrencies accountable to the same so-called wash sale rules as investors in the stock, bonds, and securities markets.

The rule would prevent investors from receiving tax benefits when they sell crypto at a steep loss, only to immediately repurchase it. That’s currently permissible. And in a market as volatile as cryptocurrencies, that can greatly reduce or even eliminate capital gains taxes.

Crypto investors wouldn’t be able to buy the same security within 30 days (before or after) of a sale without invoking penalties. Officials say the rule change could raise $16.8 billion over the next 10 years.

It’s the latest step by the government to increase the focus on crypto investors. Earlier this year, the Internal Revenue Service said it was prioritizing an effort to enforce reporting on crypto trades to find people who have neglected to report their windfalls.

The IRS has already found one investor who failed to report $5.6 million in crypto transactions. And its search of Coinbase’s customers found 750 who had sold more than $100 million in cryptocurrencies.

The new rule, if passed, would go into effect starting in 2022.

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