• The Biden Administration has proposed major changes to the tax rules surrounding cryptocurrency.
• These include a 25% minimum tax on unrealized capital gains and a 40% rate on ordinary realized capital gains – both of which could hit crypto owners hard.
• The budget proposal also includes measures to prevent loss harvesting, with the government expecting to generate $24 billion in revenue from these changes.
Biden Administration Proposes Major Changes to Crypto Taxation
The Biden Administration has proposed major changes to the tax rules surrounding cryptocurrency as part of its budget plan for the 2024 fiscal year. These changes are expected to generate $24 billion in revenue for the US government.
Unrealized Capital Gains Minimum Tax
The proposal includes a new minimum tax on so-called unrealized capital gains of 25%, which could potentially hit some American high-net-worth crypto owners hard given the wild swings in the valuation of major digital assets from one year to another.
Ordinary Realized Capital Gains Tax Doubled
Meanwhile, the tax on ordinary realized capital gains will be doubled from 20% today to 40% under the new proposal, which could also hit crypto owners hard. A capital gains tax of 40% would be very high by international standards, with most European countries taxing this type of income at a rate between 20 and 30%.
Loss Harvesting Prevention Measures
The proposed changes also include attempts to prevent crypto holders from engaging in so-called ‘loss harvesting’. The technique involves selling underwater crypto holdings before year-end and then buying the same coins back again shortly after in order to deduct the loss from the tax bill – something that was discussed in Congress previously but did not pass at that time.
Likelihood Of Passage
The proposed budget is not likely to pass however due opposition from Republican members of Congress; however, a months-long negotiation process with Republicans is now set to begin.