Senator Lummis Introduces Bill to Modernize Crypto Taxation in US

Senator Cynthia Lummis of Wyoming has introduced a new bill aimed at modernizing cryptocurrency taxation in the United States. This move comes after the recent passage of a major tax law, and it seeks to address what Lummis describes as "outdated" tax policies that could hinder American innovation in the digital economy. The bill is designed to ensure that citizens can participate in the digital economy without inadvertently committing tax violations.

The proposed legislation includes several key provisions. One of the most notable is the establishment of a de minimis rule for digital assets, which exempts transactions of less than $300 from taxation. This rule is intended to simplify the tax reporting process for small transactions, such as buying coffee with Bitcoin, and to reduce the administrative burden on users. Additionally, the bill aims to end double taxation of mining and staking activities, ensuring that gains from these activities are only taxed when the tokens are sold. This provision is designed to provide greater clarity and fairness in tax reporting for crypto users.

The bill also includes a $300 de minimis tax exemption for most digital asset transactions, allowing crypto users in the United States to make everyday transactions without incurring tax liabilities. This exemption is capped at $5,000 annually, providing a significant benefit to small-scale crypto users. The proposal creates clear rules for tax reporting and prevents gains from staking and lending from being taxed, further simplifying the tax landscape for crypto users.

Senator Lummis emphasized that the bill is fully paid for and cuts through bureaucratic red tape, establishing common-sense rules that reflect how digital technologies function in the real world. She believes that outdated tax policies should not stifle American innovation and that her legislation ensures Americans can participate in the digital economy without inadvertent tax violations. The congressional Joint Committee on Taxation estimates the bill would generate about $600 million through 2034.

The proposed bill also applies the typical 30-day wash rule to digital assets, closing a loophole that has allowed crypto investors to sell tokens at a loss and then quickly repurchase them while still claiming a tax deduction. This change is intended to create a more equitable tax environment for all investors. Additionally, the bill provides for mark-to-market treatment of crypto holdings, allowing individuals to claim losses that can then be deducted from their taxes. This provision is designed to provide greater flexibility and fairness in tax reporting for crypto investors.

Senator Lummis had previously hoped to include crypto tax provisions in President Trump’s sweeping tax and spending bill. However, the legislation ultimately passed out of the Senate without these measures. Despite this setback, the crypto tax package is being introduced at a time when Congress is particularly receptive to digital assets legislation. The Senate recently passed a bill to establish a regulatory framework for stablecoins, and House panels have advanced both stablecoin legislation and legislation dividing oversight of the broader crypto market between two financial regulators. The lower chamber is expected to take up the crypto bills later this month.