TL;DR
Congress Aims to Close a Tax Loophole
Two representatives from both sides of the political spectrum in the US — Steven Horsford (Democrat) and Max Miller (Republican) — have introduced a bipartisan draft legislation called the «Digital Asset PARITY Act», according to CryptoSlate. The proposal involves a rewrite of Section 1091 of the US tax code, which governs what is known as the «wash sale» rule.
Currently, cryptocurrency is classified as property by the US Internal Revenue Service (IRS), and thus falls outside the scope of the wash sale rule. This gives crypto investors a significant advantage: They can sell an asset at a loss, deduct the loss for tax purposes, and immediately buy back the same asset without the deduction being disallowed.
For traditional securities, this is prohibited. If an investor sells shares at a loss and buys back equivalent securities within 30 days, the loss is disallowed for tax purposes.
What is a «Wash Sale» and Why is it Important?
The strategy used by crypto investors is called «tax-loss harvesting». It works by selling a cryptocurrency at a low point, realizing a loss for tax purposes, and immediately buying it back. This allows investors to maintain their market exposure while reducing their tax burden.
Research underlying this article indicates that the absence of the wash sale rule has likely contributed to higher trading volumes, especially during periods of price decline and towards the end of the tax year. Implementing the rule would likely significantly reduce this volume, as investors would either have to wait 31 days to repurchase — or choose a different asset to retain the tax deduction.
Stablecoins Receive Special Treatment
What distinguishes this bill from previous attempts is the treatment of regulated payment stablecoins. These are proposed to be exempt from ongoing capital gains and loss calculations. This means that transactions with approved stablecoins will not trigger tax events in the same way as trades with Bitcoin or Ethereum.
This is a significant advantage for stablecoin issuers and users and can be interpreted as a political signal that authorities wish to promote stablecoins as a means of payment — rather than treating them as investment objects.
Market Consequences and Compliance Challenges
Experts point out that implementing the wash sale rule for crypto will pose significant practical challenges. The crypto market operates 24 hours a day, seven days a week, and investors often spread their holdings across many exchanges and wallets.
Keeping track of «substantially identical» assets in such an environment — including wrapped tokens, different versions of the same token, or assets on different blockchains — will be complicated. According to research cited in this article, tax experts fear this will dramatically increase the reporting burden, raise costs for tax advisors, and lead to unintentional non-compliance among ordinary investors.
It should also be noted that the wash sale rule already applies indirectly to crypto exposure via securities, such as spot Bitcoin ETFs. Investors using such products have therefore not benefited from the same loophole.
Still Just a Draft
It is important to emphasize that the Digital Asset PARITY Act is currently a discussion draft — not enacted legislation. Similar proposals have circulated in Congress since 2021 without being passed. The bipartisan cooperation behind this proposal gives it somewhat more weight than previous attempts, but it is a long way from draft to law.
Nevertheless, the political direction is clear: US authorities want to equalize cryptocurrency with traditional securities for tax purposes, and at the same time facilitate regulated stablecoins as payment infrastructure.
The bipartisan cooperation behind the proposal signals that the question of crypto taxation is no longer ideologically charged — it is now about design, not about whether.
For crypto investors and traders who have based their tax strategies on the existing loophole, this is a warning that the rules of the game may change — and that it may be wise to plan accordingly now.
