On December 20, 2023, two members of the U.S. Congress from both parties jointly proposed a new tax bill for the cryptocurrency industry to update this developing sector. The bill, named the Digital Asset PARITY Act, is represented by Mr. Max Miller and Steven Horsford.
This bill proposes to close the 'wash sale' loophole that has been providing significant benefits to this industry, in exchange for substantial tax relief on staking rewards and daily payments.
Key provisions of the Digital Asset PARITY Act
The most financially significant point of this bill is the application of 'wash sale' and 'constructive sale' rules to digital assets.
Under current regulations, crypto assets are considered property, allowing investors to sell losing positions to claim tax deductions and then immediately buy back the same asset.
By bringing digital assets under the same rules as the stock market, this bill will close a previously estimated loophole that could increase federal revenues by billions of USD.
If passed, the new regulation will require investors to wait 30 days before repurchasing that asset to be recognized for the wash sale transaction. This delay forces individuals and organizations to reconsider their entire portfolio management strategy when the market declines.
"This bipartisan bill brings transparency, fairness, reasonableness, and clarity to the tax regulation of digital assets. It protects consumers in everyday shopping, ensures clear rules for innovators and investors, and enhances compliance so that everyone plays by the same rules," Mr. Miller shared.
Introduction of the 'De Minimis' exemption
To balance with stricter trading regulations, this bill also grants significant benefits to the supply side in the cryptocurrency sector.
The bill establishes an optional framework allowing miners and validators to defer tax on staking rewards for up to 5 years or until they sell those assets.
This approach addresses the long-standing frustration of the industry regarding 'phantom income.' The issue arises when validators receive rewards in illiquid tokens that cannot be sold immediately to pay taxes.
By shifting the tax payment time to when the asset is sold rather than when the reward is received, this bill will help mining and staking activities in the U.S. avoid significant liquidity pressure.
For retail investors, the bill proposes a 'de minimis' exemption to encourage the use of digital USD.
This proposal will eliminate capital gains tax for transactions under 200 USD when users perform them using stablecoins issued by companies in compliance with the newly passed GENIUS Act.
This regulation helps users not worry about calculating taxes on each small purchase made with crypto, removing the biggest obstacle to using crypto as a practical means of everyday payment.
"Currently, even the smallest transactions with crypto are taxed, while related regulations are unclear, creating opportunities for legal loopholes. Our draft of the Digital Asset PARITY Act focuses on addressing these issues, creating a level playing field for both users and businesses to benefit from this new payment form," Mr. Horsford explained.
This proposal also tightens regulations on charitable donations, clearly distinguishing between liquid assets and speculative tokens to prevent abuse of valuation for tax evasion. This change helps the tax code genuinely support legitimate charitable activities instead of becoming a tool for tax avoidance.
