Members of Congress are advancing legislation to close a significant tax advantage available to cryptocurrency investors that is estimated to reduce federal revenue by billions of dollars each year. The proposed measure would subject digital assets to wash sale rules, which have applied to traditional securities like stocks for over a century.
Under current tax law, investors can claim deductions for capital losses on cryptocurrency holdings while retaining ownership of those assets in their portfolios. This practice, known as tax-loss harvesting, is standard for stocks and other traditional investments but differs because wash sale rules prevent investors from immediately repurchasing substantially similar securities within a specified timeframe while claiming the tax benefit. Since cryptocurrency is treated as property rather than securities by the federal government, it has remained outside the scope of these restrictions.
Rep. Jodey Arrington of Texas introduced the Applying Existing Tax Anti-Abuse Rules to Digital Assets Act in June to close this gap. The proposal has garnered support from other Republican members, including Rep. Ron Estes of Kansas, marking a rare area of bipartisan interest on cryptocurrency taxation. The Treasury Department estimated in 2024 that extending wash sale rules to digital assets would generate nearly $24 billion in revenue over a decade.
Experts note that the timing of this legislative push reflects current market conditions, as many cryptocurrency investors who purchased holdings over recent years are likely experiencing losses. Bitcoin, the largest cryptocurrency, has lost approximately half its value since October 2025. While passage of the legislation appears unlikely in the near term as Congress approaches midterm elections, analysts suggest the growing support signals stronger future momentum for such provisions.
The proposed rules would not uniformly restrict all crypto investors, as those holding cryptocurrency through exchange-traded funds and other securitized products would already be subject to existing wash sale regulations. Additionally, investors could potentially navigate restrictions by trading between different cryptocurrencies or other digital assets deemed not substantially similar under the law.
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