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House Democrats on Monday proposed legislation that would close a tax loophole for crypto investors.

The bill imposes “sale-laundering” rules on goods, currencies and digital assets, according to a scheme released by the House Ways and Means Committee.

This means that Bitcoin, Ethereum, Dogecoin and other popular crypto investments will be subject to anti-abuse rules, which apply to stocks, bonds and other securities.

Wash selling rules prevent investors from taking tax benefits from a losing investment and then immediately buying back the same asset.

The IRS treats cryptocurrency as a property, not as a security, which is how the asset class escapes the rules.

As a result, cryptocurrency investors reap two benefits: they can sell cryptocurrency at a loss and claim tax benefits. (This loss can reduce or eliminate capital gains tax on winning investments.) Then, they can quickly buy back the cryptocurrencies they sold to capture any price recovery — which is not out of reach given the volatility of the cryptocurrency.

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By comparison, stock investors are not allowed to purchase an identical or similar security within 30 days before the sale or 30 days after the sale without penalties.

The House Democrats’ proposal will apply to sales after December 31, 2021.

Subjecting cryptocurrencies and other assets to selling rules would raise $16.8 billion over a decade, according to estimates published by the Joint Commission on Taxation on Monday.

The measure is among a series of tax reforms Democrats are considering to raise money for climate investments and a major expansion of the US social safety net, which is expected to cost up to $3.5 trillion.

The sweeping corporate and individual tax reforms outlined Monday will raise nearly $2.1 trillion over a decade.

If crypto is eventually subject to the rules of a laundered sale, investors may be able to quickly create positions in a different currency without getting stuck.

Cryptocurrencies are different enough that quickly selling bitcoin and then buying ethereum, for example, likely won’t break the rules, according to Ivory Johnson, certified financial planner and founder of Delancey Wealth Management in Washington, DC.

“The similarities begin and end with the exchange of currencies on the blockchain. Using this logic, stocks traded on the stock exchange, NYSE or otherwise, are not one and the same either,” Johnson said. “Bitcoin is clearly an ether of what gold is to Visa – it’s not ‘too much the same’ and should not, in my opinion, trigger a wash sale rule.”

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