US Crypto Tax Loss Harvesters Make Hay While the Sun Shines – But the Clock’s Ticking


American crypto investors are exploiting two key loopholes for “tax loss harvesting,” but experts warn that lawmakers are aware of them and are seeking to close them before the end of the year.

reported that a number of Democrat Congressmen have been made aware of the fact crypto traders can write off losses by selling tokens at lower price – they can only buy the same type of coins again within the next thirty days. Some traders also seek to offset their positions to avoid filing capital gains declarations.

CNBC quoted Shehan Chaudrasekera as the head of tax strategy for the crypto tax software company Coin Trackeras saying that “savvy investors” are currently “selling at a loss” and “buy back Bitcoin (BTC) at lower prices” to try to appear “as poor as possible.”

He stated:

“I see people doing these things every month, every week and every quarter depending on their level of sophistication.”

Chandrasekera stated that investors can take “unlimited amounts of losses” and “carry them forward to an unlimited number tax years.”

However, those who take advantage of this loophole will be looking at Congress’ Ways and Means Committee. They have filed a proposition for legal changes, along with other tax changes.

The committee suggested that digital assets should be included in the “constructive sale rules”, adding that they were also subject to anti-abuse rules.

“The constructive sales rules […] consider the adoption of certain offset positions to previously-owned positions as sales of that position. These rules stop taxpayers from locking in investment profits without realizing taxable gains.

They also wrote about “wash sales” and the need to include digital assets in the wash-sale rule, which they described as “an anti-abuse law previously applicable to stocks and other securities.”

The committee continued:

“The wash sale rule […] prohibits taxpayers from claiming taxes losses while still retaining an interest the loss asset.”

The Washington Post has previously calculated that the government could generate up to USD 16bn tax revenue if it makes rule changes as planned.

The Joint Committee on Taxation is even happier, with its calculations putting it closer to USD 17bn.

Chandrasekera, however, argued in a piece Forbes that traders could still use tax loss harvesting to make constructive sales in the United States, provided they had the timing and calculations right.

He warned that “it will be your responsability to track constructive sales and adjust the cost basis, report gains if applicable,” since exchanges “willn’t report constructive sales on transaction history reports” nor “on the upcoming 10099-B forms.”

Chandrasekera ended by warning:

“If this rule is enacted, it will increase the administrative burden on cryptocurrency taxpayers along with the wash-sale rule.”

The Ways and Means Committee authors stated that the proposed changes would be applicable to “taxable years starting after December 31, 2021.”

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