Many cryptocurrencies – chain link (CRYPTO: link)And Algorand (encode: something), And ripple‘s (CRYPTO: XRP) The XRP token is among them – incurring significant losses on Monday in the wake of new tax rules proposed by Democrats in the US House of Representatives. These coins are down 5.7%, 3.3%, and 4.1%, respectively, as of 4:30 PM ET.
As part of a massive infrastructure bill that is making its way through Washington, House Democrats have introduced a series of potential changes to the tax code that include raising the top capital gains rate from 20% to 25% and adjusting ratings that allow cryptocurrency traders to benefit from the law. Tax wash sale loopholes. The proposed changes are likely to result in higher tax obligations for short-term and high-volume cryptocurrency traders.
If investors sell cryptocurrencies or stocks at a loss, they are eligible for a capital gains tax deduction. Under the rules that apply to securities, investors are required to wait at least 30 days before buying back shares they previously sold at a loss. Otherwise, the prior sale is classified as a “whole sale” and does not qualify for this tax deduction. However, the tax preparation is a little different when dealing with cryptocurrencies.
Since cryptocurrencies are currently classified as property by the IRS rather than as securities, they are not subject to blanket sale rules. This paves the way for more versatile short-term trading, where traders can sell tokens at a loss and then buy back their positions in less than 30 days, but still benefit from capital gains tax cuts.
While the proposed changes to crypto-launder sales still face significant legislative hurdles that must be cleared before they can take effect, it is not unreasonable to think that such a regulatory shift will be put in place at some point. Stronger regulation is a primary risk factor for cryptocurrency investors.
The proposed shift in selling and selling for some cryptocurrency traders is likely to leave higher tax bills, but the potential shift will have a relatively minor impact on many holders of Chainlink, Algorand, and XRP. It may be possible that subsequent and more disruptive regulatory changes will occur that investors should be more concerned about.
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