Senator Lummis Introduces Bill to Reform Crypto Taxation

United States Senator Cynthia Lummis has introduced a standalone bill aimed at reforming the tax treatment of cryptocurrencies. The draft, submitted on Thursday, seeks to address several key issues that have long plagued the crypto industry, including double taxation and the lack of clarity in tax policies for digital asset transactions.

The bill proposes several significant changes to the existing tax code. One of the most notable provisions is a de minimis exemption for digital asset transactions and capital gains of $300 or less, with an annual cap of $5,000. This exemption aims to reduce the tax burden on small-scale crypto transactions, making it easier for individuals to participate in the digital economy without facing inadvertent tax violations.

Additionally, the bill seeks to exempt crypto lending agreements and digital assets used in charitable contributions from taxation. This move is intended to encourage the use of cryptocurrencies in lending and charitable activities, further integrating digital assets into mainstream financial practices. The bill also proposes deferring taxes on mining and staking rewards until the underlying assets are sold, providing a more flexible and practical approach to taxing these activities.

Senator Lummis emphasized the importance of these reforms, stating that the legislation is fully paid for and cuts through bureaucratic red tape. She highlighted that the current tax policies are archaic and stifle American innovation, making it difficult for individuals to participate in the digital economy without facing unintended tax consequences. Lummis' bill represents a significant step towards creating a more favorable regulatory environment for cryptocurrencies in the United States.

The standalone draft bill comes after the failure of crypto amendments to appear in the recent budget package. This makes it the Wyoming Senator's best chance of passing pro-crypto legislation, which she had promised to the crypto community. The bill addresses the frustration of digital asset taxation, which has become a hot-button issue in the crypto industry. Executives, investors, traders, and users have long been frustrated by the lack of clarity and tax efficiency in the United States.

One of the major points of contention is the tax treatment of completely decentralized finance (DeFi) protocols and non-custodial platforms. In June, lawmakers on the House Financial Services Committee introduced an amendment to the Digital Asset Market Clarity Act of 2025, which would exempt developers of decentralized protocols from being classified as money-transmitting services. This amendment would also exempt these DeFi protocols from the same tax reporting requirements as centralized exchanges and other crypto businesses employing a traditional business structure.

The introduction of this standalone bill by Senator Lummis is a significant development in the ongoing efforts to clarify and streamline the tax treatment of cryptocurrencies. It reflects a growing recognition of the need for more practical and efficient tax policies that can foster innovation and encourage participation in the digital economy. As the bill moves forward, it will be closely watched by the crypto community and industry stakeholders, who hope that it will pave the way for a more favorable regulatory environment for digital assets.