Senate Bill Proposes Major Reforms to US Crypto Taxation
By: Eva Baxter
In a move to redefine the legislative landscape for digital assets, U.S. Senator Cynthia Lummis has introduced a new bill aimed at revising the tax treatment of cryptocurrencies. This legislative proposal seeks to amend several sections of the Internal Revenue Code to offer more precise definitions and favorable tax conditions for cryptocurrency transactions. The bill primarily aims to remove the bureaucratic red tape and facilitate American participation in the digital economy, preventing inadvertent tax violations.
Among the key features, the proposal introduces statutory definitions for "digital asset" and "actively traded digital asset", classifying them as property unless they mirror traditional financial instruments. Additionally, it introduces a new section, §139J, which provides a de minimis exemption for digital asset transactions. This exemption allows gains or losses from token payments for goods or services, provided each transaction and any attendant loss remains below $300 and the taxpayer's annual gains do not exceed $5,000. These dollar caps will be indexed for inflation from 2026, with exclusions applicable in cases of loss harvesting intents.
The bill further encompasses several market-facing adjustments. It extends the securities-lending safe harbor (Section 1058) to include "specified assets", now covering actively traded tokens. This allows holders to lend their cryptocurrency without incurring taxable events. Moreover, the expanded definition in §1091 disallows wash-sale loss deductions for digital assets and related derivatives, though excluding payment stablecoins and dealer inventory. It introduces an election under §475(g) for dealers to adopt mark-to-market accounting for crypto inventories, aligning tax treatments with fair-value accounting methods.
Significantly, the bill offers clarity on the taxation of block validation income, proposing deferral of income recognition for miners and stakers until the sale of reward tokens. Foundation giving is also addressed; private entities may now receive appreciated, actively traded tokens with deductions similar to those for publicly traded stocks. Most of these provisions, including the mining deferral and wash-sale expansions, are set to phase out after 2035.
Through these comprehensive reforms, Senator Lummis's bill could potentially overhaul the current tax environment, reducing complexity and encouraging broader participation in the digital marketplace.
