The House Ways and Means Committee has circulated draft legislation that would revise tax reporting and treatment for a range of digital asset activities. The proposals, released in draft form, address income recognition for newly created tokens, annual reporting options for holders of widely traded assets, wash-sale restrictions, and the availability of a mark-to-market tax regime for professional market participants.
Under one of the draft provisions, tokens generated through processes such as mining or staking would not be recognized as income at the time of creation. Instead, those tokens would be treated as non-taxable until an owner sells them. At the point of sale, any gain or loss on disposal would be characterized as ordinary income rather than as a capital gain.
Another draft would change the reporting burden for holders of widely traded digital assets by allowing them to report aggregate gains and losses for the year rather than calculating tax consequences on each individual transaction. The aggregation option would not be available to traders, dealers, or users who execute more than 5,000 transactions in a year.
The legislative text also contains provisions addressing stablecoins, noting separate rules for assets that track the value of currencies such as the U.S. dollar.
A separate draft seeks to align certain cryptocurrency tax rules with those that apply to securities by closing existing loopholes. Specifically, the proposal would impose wash sale-like restrictions on cryptocurrencies: investors would be barred from claiming losses on a sale if they purchase a substantially similar asset within 30 days of that sale.
The drafts further propose allowing dealers and professional traders in cryptocurrencies to elect the mark-to-market tax regime currently available to securities traders. That optional regime would tax annual unrealized gains and losses and could enable traders to use losses to offset tax on other income without being subject to the typical limitations on capital loss deductions that apply to nontrader investors.
The drafts represent a multi-pronged approach to taxation and reporting for digital assets, addressing creation of new tokens, aggregation of taxable events for widely traded holdings, parity with securities trading rules, and an optional trader accounting regime.
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