Bipartisan lawmakers in the United States are making significant strides towards establishing a new tax framework for cryptocurrencies. This initiative seeks to clarify the rules governing the daily use of digital assets and reduce compliance burdens associated with smaller transactions.
The proposal, spearheaded by Republican Max Miller and Democrat Steven Horsford, aims to provide targeted tax relief for cryptocurrency transactions. Notably, it suggests exempting capital gains taxes on certain stablecoin payments, specifically those involving regulated, dollar-pegged stablecoins for transactions of $200 or less. This move is expected to simplify tax calculations for everyday purchases.
The framework is particularly important as it responds to growing pressure from the cryptocurrency industry, which argues that the current uncertainty surrounding tax obligations stifles innovation and responsible reporting. Lawmakers believe that a clearer framework will encourage more users to engage with digital assets without fear of unexpected tax implications.
Stablecoin Regulations and Tax Rewards
In addition to easing tax burdens on small transactions, the proposal includes specific criteria for stablecoins to qualify for the exemption. These stablecoins must be issued in accordance with the GENIUS Act and maintain a close peg to the US dollar, with prices not exceeding 1% of one dollar for 95% of the days in a given year. Notably, brokers and dealers are not covered under this safe harbor provision.
The legislation also addresses taxation on rewards from staking and mining, a topic that has been contentious among lawmakers. Under the proposed rules, taxpayers would have the ability to defer taxes on such rewards for up to five years, with these rewards ultimately taxed as ordinary income.
Horsford emphasized the importance of establishing guardrails for emerging technologies, asserting that the existing regulatory framework disproportionately penalizes smaller cryptocurrency users, where even minor transactions can trigger taxable events.
Alignment with Securities Law
Beyond the focus on stablecoins, the tax framework seeks to align cryptocurrency taxation more closely with securities law. This includes allowing eligible traders to utilize mark-to-market accounting, which would enable them to recognize unrealized gains and losses on an annual basis. This accounting method is already available to traditional financial traders.
Furthermore, the proposal aims to expand wash-sale rules to cover cryptocurrencies, closing a loophole that previously allowed investors to claim losses on crypto assets if they repurchased identical tokens within a short timeframe. This change would mirror existing regulations in stock trading.
Charitable contributions of cryptocurrency are also addressed in the draft legislation, which proposes waiving appraisal requirements for large donations. Proponents argue that this would facilitate philanthropic efforts involving digital assets, although concerns about potential abuses are still being discussed.
IRS Reporting Changes on the Horizon
In tandem with these legislative efforts, the Internal Revenue Service (IRS) is set to implement new reporting requirements starting in 2025. Brokers will be mandated to report the sale proceeds of cryptocurrencies, with cost basis reporting to follow in 2026. A newly introduced Form 1099-DA will provide a structure similar to that used in the stock market, shifting the reporting burden from individual taxpayers to the platforms themselves.
This collaborative approach between lawmakers and regulatory bodies signifies a maturing perspective on cryptocurrency policy, emphasizing bipartisan cooperation. If successfully enacted, the proposed tax framework could fundamentally reshape the landscape of cryptocurrency taxation in the United States, leaving market participants eagerly awaiting further developments.
