Lawmakers Seek to Plug Crypto Tax Loophole Estimated to Cost Billions

The U.S. Capitol in Washington is seeing renewed efforts to close a lucrative tax loophole for cryptocurrency investors, estimated to be worth billions of dollars per year.

Lawmakers are pushing to eliminate a provision that allows crypto investors to claim a tax benefit for an investment loss without divesting the holding from their portfolio.

This tax advantage has been widely used by crypto investors, said Troy Lewis, a certified public accountant and professor of accounting and tax at Brigham Young University.

Wash sale rules prevent investors who sell investments for a loss in a given year from buying back the same or substantially similar security within 30 days before or after a sale and still claiming a tax deduction for the capital loss.

The Biden administration and congressional Democrats tried to close this loophole during the pandemic era, but it's now being introduced by a Republican, Rep. Jodey Arrington, R-Texas, in his Applying Existing Tax Anti-Abuse Rules to Digital Assets Act.

Experts say extending wash sale rules to crypto would be a budget-raiser for lawmakers and provide consistency and clarity for investors and traders.