US crypto tax bill advances 38–5, but staking question remains

A broad US crypto tax bill [H.R. 10357, the “Digital Asset Tax Certainty Act”] has advanced from the House Ways and Means Committee with considerable support from both parties.

Lawmakers voted 38–5 to send the Digital Asset Tax Certainty Act to the full House. However, the debate revealed that the bill leaves a major question about staking and mining unresolved, and three amendments from Representative Lloyd Doggett were rejected. 

Crypto tax bill wins bipartisan backing

The draft legislation would amend various tax rules that currently apply to stocks and other investments to also apply to digital assets.

Wash-sale restrictions for crypto would prohibit investors from selling at a loss and quickly buying back the same asset to reduce their tax bills.

The bill also reduces some accounting options, creates some crypto-lending rules, and makes some rules for making some digital asset donations easier to value.

Also, it will allow the use of cryptos without calculating a gain or loss to pay network or transaction fees of up to $10, thus removing the paperwork for small fees attached to blockchain transactions that this generates.

Another thing it provides is that it restores the full deduction for gambling losses, but that is if those losses are not more than the winnings.

Several Democrats backed the compromise even though they indicated that some issues were not yet completely resolved.

Representative Steven Horsford expressed that some questions were unanswered and that Congress could revisit the legislation if need be, but that the bill provided basic guardrails into which Congress can come back and fill in the blanks later.

Staking tax timing remains unsettled

How to determine when staking and mining rewards become taxable is one such question.

The bill says income earned from validating crypto transactions will be treated as ordinary income. However, Joint Committee on Taxation Chief of Staff Thomas Barthold told lawmakers that it does not decide when that income must be recognized.

It matters because a crypto holder may receive rewards from cryptos when not selling or converting them into dollars later on.

Another disagreement that showed during the hearing was over the proposed exemption for small network and transaction fees.

The JCT estimates this would reduce federal revenue by $2.365 billion over the ten-year period. Barthold acknowledged normal payments, such as ATM fees, are not treated the same way.

Even so, the entire bill is expected to raise about $500 million over the same period. Revenue from wash-sale restrictions and other measures would more than offset its tax-relief provisions.

None of Representative Doggett’s amendments passed when put to vote by the congressmen. They would have prevented senior officials from benefiting from crypto, restored previous reporting requirements concerning the disclosure on decentralized platforms, and would have ordered a study of crypto mining relating to the impact it has on energy.

Final Summary

• The committee voted 38-5 in favour of the Digital Asset Tax Certainty Act.
• The Digital Asset Tax Certainty Act simplifies crypto taxation rules. However, it does not take into account when crypto staking rewards should be taxable.