Congress renews push to apply wash sale rules to crypto trades

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Congress renews crypto tax rules

Highlights

Republican lawmakers, led by Representative Jodey Arrington, advanced a bill in June to apply wash sale rules to digital assets and close a widely-used tax loophole.
The Treasury Department estimated in 2024 that extending wash sale rules to crypto would generate nearly $24 billion in revenue over ten years.
Experts believe the bill faces low passage odds before midterm elections, but its introduction signals increasing bipartisan interest in equalizing crypto tax treatment.

Legislation targets long-standing crypto tax gap

As first reported by CNBC, Republican lawmakers are advancing legislation that would subject digital assets to the same wash sale restrictions that already apply to stocks and other securities. Representative Jodey Arrington of Texas introduced the Applying Existing Tax Anti-Abuse Rules to Digital Assets Act in June, a measure that would end a loophole experts say crypto investors have widely used.

Under current tax treatment, investors in assets such as bitcoin and ether can sell at a loss, claim the tax benefit and quickly repurchase the same holding without losing the deduction. For stocks and similar securities, wash sale rules block that tax benefit if the investor buys the same or a substantially similar asset within 30 days before or after the sale.

Tax-loss harvesting remains a common planning strategy because capital losses can offset capital gains, with up to $3,000 of excess losses generally deductible against regular income and the remainder carried forward. Crypto falls outside those anti-abuse rules because the federal government generally treats it as property rather than a security, leaving digital assets outside a framework that dates back in some form to 1921.

Support for changing that treatment appears to extend beyond one lawmaker. Representative Ron Estes of Kansas said in June at a House Ways and Means Committee hearing that extending wash sale rules to digital assets would ensure they are not treated better or worse than similar financial assets and would provide consistency and clarity for investors and traders.

Revenue impact and market timing

The Treasury Department estimated in 2024 that applying wash sale rules to digital assets would raise nearly $24 billion over a decade, giving Congress a potential budget-raising measure at a time when such options are hard to find politically. Tax specialists also describe the Republican sponsorship as notable because similar efforts had previously come from the Biden administration and congressional Democrats during the pandemic era.

Experts say the timing also reflects market conditions. Bitcoin has lost about half its value since October 2025, increasing the number of investors sitting on paper losses and making the current exemption more valuable for those seeking tax deductions.

The broader House crypto package, including the wash sale bill, is unlikely to pass in the coming months as Congress approaches the midterm elections, according to experts cited in the report. Still, the renewed push signals stronger future interest as the Senate debates separate crypto regulation that includes limits on federal officials issuing digital assets.

Not every crypto-related investor currently avoids wash sale limits. Holders of bitcoin exchange-traded funds and other crypto ETFs, which are securities, likely already have to comply with existing wash sale rules.

In our earlier report on a Cayman Islands-based former Texas resident sentenced for offshore tax evasion tied to a cryptocurrency-focused hedge fund, we described how prosecutors said he failed to report millions in hedge fund income and concealed foreign accounts. The case also highlighted alleged false expatriation filings and resulted in prison time and multimillion-dollar restitution, underscoring intensifying scrutiny of cross-border tax noncompliance.

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