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The House Ways and Means Committee is trying to close one of the most profitable cryptocurrency loopholes. This could cost Bitcoin and other virtual coin holders nearly $ 17 billion, according to estimates by the Joint Taxation Commission.
According to the Commission’s summary report, the bill applies so-called wash sale rules to digital assets, treating them like stocks. This rule forces investors to wait 30 days from the sale of a security to its repurchase, if tax credits are included.
This is one of the tax increases that the Democratic Party is considering as a way to fund President Biden’s $ 3.5 trillion in spending proposed to expand the US social safety net. Democrats face many hurdles to complete the bill and pass it in a deeply divided parliament, but crypto experts are already helping investors minimize 2021 taxes I’m looking for.
If the proposal is passed, taxpayers will need to take full advantage of existing loopholes by December 31st. This allows crypto investors to sell coins with tax losses and buy them back immediately. Given the recent plunge in crypto prices (the market has fallen 26% from May records), the timing of the tax cut harvest is ripe.
Minimize the 2021 crypto tax bill
The IRS currently classifies digital currencies such as Bitcoin as assets, so losses from holding cryptocurrencies are treated in a very different way than stocks and investment trusts.
Shehan Chandrasekera, Chief Strategy Officer for cryptocurrency software company CoinTracker.io, said: “You want to look as poor as possible.”
Chandrasekera added that investors can take advantage of unlimited losses to “carry forward to an unlimited tax year.”
The bigger the cryptocurrency market, the more this happens.
“I see people doing this monthly, weekly, and quarterly, depending on their sophistication,” said Chandra Sekera.
The occurrence of these losses is a way for investors to ultimately offset future profits and reduce capital gains taxes that apply to other assets. In other words, they reduce what they owe to the IRS.
Repurchasing crypto quickly is another important part of the equation. If the timing is right, investors can regain ride quality by buying a dip, assuming there is a rebound. Digital coins are notorious for their high volatility and often plummet and then spike.
Here’s an easy way to think about equations: A person who buys one Bitcoin for $ 10,000 and sells it for $ 50,000 will face a taxable capital gain of $ 40,000 if Bitcoin was like a stock in Apple or Tesla. However, due to a washsale loophole, if this same person previously harvested a loss worth $ 40,000 in a previous crypto transaction, they could offset the taxes they incur.
Chandrasekera said it was an increasingly popular strategy among his company’s customers, but he warned that thorough bookkeeping was essential.
“Without detailed transaction and cost-based records, the IRS cannot prove the calculation,” said Chandra Sekera.
What will change
The wash sale rules will come into effect on January 1st. But to get there, you need to be included in the law that goes through the House of Representatives and the Senate.
Chandra Sekera, like any other investment, is confident that the rules will be the final bill, as they match the cryptocurrencies treated as security covered by the 1099-B report. “
However, as it is written, the rules do not apply retroactively, so crypto investors have windows available to take advantage of asset sales.
“Taxpayers can still reduce the 2021 tax bill, but they have only a few months to do so,” said Chandra Sekera. “It’s a great time as the market has fallen in the last two weeks.”
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Source link Wash sale rules may apply to Bitcoin and Ethereum on spending invoices