On December 20, a bipartisan initiative led by Representatives Max Miller and Steven Horsford introduced a significant piece of legislation known as the Digital Asset PARITY Act, aimed at reforming the tax landscape for cryptocurrencies in the United States. This proposed law seeks to modernize the current tax framework governing digital assets and addresses some of the industry”s most pressing issues.
One of the pivotal aspects of the Digital Asset PARITY Act is its focus on closing the “wash sale” loophole that has allowed traders to exploit tax deductions. Currently, under existing tax regulations, cryptocurrencies are classified as property. This classification enables traders to sell off losing positions to claim tax losses and immediately repurchase the same assets. The new legislation would align crypto tax rules with those of the equity markets, imposing a 30-day waiting period before traders could repurchase an asset to benefit from a loss claim. This shift could potentially reshape trading strategies, particularly during market downturns, and is anticipated to generate billions in federal revenue.
In a statement, Congressman Miller emphasized the importance of this legislation, saying, “This bipartisan legislation brings clarity, parity, fairness, and common sense to the taxation of digital assets.” He highlighted the bill”s intention to protect consumers making everyday purchases while ensuring that the rules are straightforward for both innovators and investors.
To counterbalance the stricter trading regulations, the PARITY Act introduces a significant concession for the crypto sector. It proposes a framework that allows miners and validators to defer taxes on staking rewards for up to five years, or until they sell the assets. This approach aims to mitigate the issue of “phantom income,” which arises when validators receive rewards in illiquid tokens that cannot be readily sold to cover tax obligations.
Moreover, the legislation introduces a “de minimis” exemption designed to facilitate the use of cryptocurrencies in daily transactions. Specifically, it aims to eliminate capital gains taxes on transactions below $200 when users transact with stablecoins issued by compliant firms, as defined by the recently enacted GENIUS Act. This provision is expected to increase the practicality of using cryptocurrencies for everyday purchases, removing a significant barrier that has hampered their adoption as a medium of exchange.
Additionally, the PARITY Act seeks to tighten regulations surrounding charitable donations by differentiating between liquid assets and speculative tokens, thus preventing potential valuation abuses. This measure aims to ensure that the tax code supports genuine philanthropic efforts without being exploited for tax avoidance.
As the Digital Asset PARITY Act moves through the legislative process, it represents a critical step toward establishing a more equitable and clear tax framework for the burgeoning cryptocurrency industry in the United States.
