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Crypto Tax Loopholes US President Biden Wants To Close

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US President Joe Biden has once again caused a stir in the crypto community with a new tweet. Biden shared a graphic on Twitter calling for closing “tax loopholes” that supposedly help wealthy cryptocurrency investors.

According to the infographics, the US government is losing $18 billion due to crypto-related tax loopholes. The tweet is also a battle cry from US Democrat Biden to the Republicans, whom he accuses of wanting to compromise on food safety controls in order to protect wealthy cryptocurrency investors.

Unsurprisingly, the tweet was met with fierce opposition in the community. While some members of the community questioned the validity of the number, Scott Melker wrote that Biden must first return campaign donations from FTX founder Sam Bankman-Fried before making any claims.

These are the tax loopholes for cryptocurrency

Accointing has taken on cryptocurrency portfolio tracking and tax software look At the $18 billion figure that Biden claimed the tax savings loophole is referring to. According to the company, the strategy the US president is targeting is “tax loss harvesting” combined with a wash-sale rule.

Harvesting tax losses is the most common approach to saving taxes when trading. This involves selling off underperforming cryptocurrencies at the end of the year to offset other gains made during the year.

Another method is to sell underperforming assets and use the loss to offset gains on other assets as investors trade, as the following example shows:

Let’s say you bought 1 BTC for $7,000 in 2019 and you want to sell it today for $27,000. If you sell it, you will get $20,000 in profit, but if you can find a $20,000 position in the hole, you can also sell that position and your BTC gain becomes tax deductible.

However, Biden’s claim probably relates mostly to the laundry rule. Unlike the traditional financial market, cryptocurrencies do not have a “wash sale” rule that prevents investors from buying back the same asset within 30 days of selling it.

This means that cryptocurrency investors can offset tax losses at any time and buy back the same asset on the same day without any legal consequences.

US lawmakers have realized that this “loophole” for cryptocurrency investors leads to a significant loss of tax revenue. For this reason, the Biden administration’s budget for 2024 includes a provision that would apply the wash sale rule to cryptocurrencies as well.

And where does the $18 billion figure come from? The National Bureau of Economic Research estimates the US Treasury’s loss in tax revenue in 2018 at up to $16.2 billion due to laundry sales, with Biden’s figure of $18 billion likely to come, Aquinting says.

At the time of publication, the bitcoin price was hovering below a key resistance level, chopping back against the dollar

BTC price, 4-hour chart | source: BTCUSD on TradingView.com

Featured image from iStock, chart from TradingView.com

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