Congress Targets Crypto Wash Sale Loophole in New Legislation

Congress is taking aim at the crypto wash sale loophole that allows investors to book losses on cryptocurrency trades while keeping their market exposure intact.

The loophole, which applies to most cryptocurrencies and allows traders to deduct losses if they sell a position at a loss and buy back in minutes later, could be closed under two bills currently making their way through the House of Representatives: the Applying Existing Tax Anti-Abuse Rules to Digital Assets Act and the Digital Asset PARITY Act.

According to the Tax Policy Center, applying wash sale rules to digital assets would raise about $24 billion over 10 years. The White House's 2024 budget proposal also included this target.

The bills aim to close the gap between how stocks and cryptocurrencies are treated under tax law, where investors can't deduct losses on trades if they repurchase the same stock within 30 days.