In a significant move for the cryptocurrency sector, bipartisan lawmakers in the United States have drafted a new tax framework aimed at clarifying regulations surrounding digital assets. This proposal seeks to reduce compliance burdens and provide clearer guidelines for everyday transactions involving cryptocurrencies.
Leading the initiative are Republican Max Miller and Democrat Steven Horsford, who emphasize the need for clearer rules to foster innovation within the industry. According to reports from Bloomberg, the current uncertainty surrounding cryptocurrency taxation has hindered responsible innovation and proper reporting practices.
One of the key features of this proposed framework is the exemption of capital gains on certain stablecoin transactions. Specifically, transactions involving regulated, dollar-pegged stablecoins valued at $200 or less would be exempt from complex tax calculations. This change is expected to benefit small purchases, allowing users to engage in everyday transactions without the fear of triggering a taxable event.
For stablecoins to qualify for this exemption, they must adhere to specific criteria outlined in the GENIUS Act. The legislation stipulates that stablecoins must closely follow the value of the US dollar, with price fluctuations not exceeding 1% of one dollar for 95% of the days. However, brokers and dealers would not benefit from this safe harbor.
The framework also addresses the longstanding debate over the taxation of staking and mining rewards. Under the proposed regulations, taxpayers would have the option to defer taxes on rewards for up to five years, with eventual taxation treated as ordinary income. Horsford has highlighted the importance of establishing guardrails for emerging technologies, arguing that existing rules disproportionately penalize smaller users of cryptocurrency.
In addition to stablecoins, the new framework aims to align cryptocurrency taxation with existing securities laws. Eligible traders would have the option to utilize mark-to-market accounting, which allows for the realization of unrealized gains and losses on an annual basis. This treatment is currently available for traditional financial traders.
Furthermore, the proposal seeks to expand wash-sale rules to cryptocurrencies, preventing investors from claiming losses on identical tokens if they repurchase them within a short timeframe. This measure is intended to close a loophole that has allowed for potential abuse.
Charitable donations of cryptocurrency are also addressed in the draft, which would remove appraisal requirements for larger donations. Supporters of this provision argue that it would facilitate philanthropic efforts involving digital assets, though discussions continue regarding protections against potential abuse.
Lawmakers are also considering implementing an annual cap on the stablecoin exemption to prevent the shielding of investment gains. As discussions progress, the final thresholds remain undefined, and further deliberations are expected.
This tax framework is part of broader legislative efforts, including the recently passed GENIUS Act, which regulates stablecoin issuers, and the CLARITY Act, which delineates what constitutes securities and commodities. Together, these measures aim to modernize the oversight of cryptocurrencies.
As the Internal Revenue Service (IRS) moves forward with its reporting rules, starting in 2025, brokers will be required to report the sale proceeds of cryptocurrencies, with cost basis reporting following in 2026. A new Form 1099-DA will be introduced, resembling disclosures typically seen in the stock market. This shift in reporting responsibility from individuals to platforms is expected to enhance compliance accuracy.
Overall, this bipartisan proposal signifies a maturation of policy approach towards cryptocurrencies. With ongoing debates within Congress, the collaboration between parties could redefine the landscape of crypto taxation. Market participants are now keenly awaiting revisions, caps, and the potential for legislative advancement.
