Following a major shift in crypto regulation under the new White House administration of President Donald Trump, lawmakers are developing a new tax framework. This aims to provide clarity and a safe harbor for certain stablecoin transactions.
Representatives Max Miller of Ohio and Steven Horsford of Nevada have drafted a preliminary proposal to align cryptocurrency tax treatment with that of traditional securities. According to a Bloomberg report, the draft combines policy objectives and bill language that has not yet been formally approved.
A key feature of the draft is an exemption from capital gains tax for transactions involving regulated stablecoins. Specifically, it would shield transactions where the value consistently stays between $0.99 and $1.01. However, this exemption would be limited to transactions under $200, and the final text may change which tokens qualify.
The proposal also seeks to establish safe harbors for rewards from activities like staking, which involves verifying blockchain transactions. Representative Miller stated that “America’s tax code has failed to keep pace with modern financial technology,” describing the bipartisan bill as a way to bring clarity, fairness, and common sense to digital asset taxation.
Currently, under IRS guidance from the Biden administration, staking rewards are taxed when received. Republican lawmakers argue this taxes assets before owners realize a gain, while Democrats maintain these rewards should be taxed as compensation upon receipt.
To bridge this divide, Miller and Horsford propose a compromise allowing taxpayers to defer tax on such rewards for up to five years. After that period, the rewards would be taxed as income based on their fair market value. Pro-crypto Senator Cynthia Lummis, who recently announced she will not seek re-election, had previously introduced legislation that would not tax these rewards until they are sold, aligning more closely with industry preferences.
Additionally, the draft aims to place digital assets under the same tax regime governing securities and some commodities. It proposes including cryptocurrencies in capital gains tax exemptions for foreign investors trading through U.S.-based intermediaries like brokers or exchanges.
The plan would also allow cryptocurrency traders to use mark-to-market accounting, recognizing unrealized gains and losses based on year-end fair market value. Furthermore, the legislation seeks to restrict deductions for losses from digital asset wash trades and “close existing loopholes” that allow locking in cryptocurrency gains while deferring the associated tax liability.
Frequently Asked Questions
Of course Here is a list of FAQs about the proposed safe harbor for stablecoin taxes written in a natural tone with clear direct answers
Beginner Definition Questions
1 What is this safe harbor proposal all about
Its a new bill in the US House of Representatives Its main goal is to clarify that using a stablecoin to pay for everyday goods and services should not trigger a capital gains tax bill for the user
2 What is a stablecoin
A stablecoin is a type of cryptocurrency designed to have a stable value typically pegged 1to1 to a traditional currency like the US dollar Examples include USDC and USDT Think of it like a digital dollar you can use on blockchain networks
3 Whats the current tax problem with stablecoins
Under current IRS rules every time you spend or trade cryptocurrencyeven a stablecoinits considered a taxable event You have to calculate if you had a gain or loss based on its purchase price For a stablecoin worth 100 this is a huge paperwork hassle for virtually no tax owed
4 What does de minimis mean
Its a Latin term meaning minimal or trivial The proposal creates a de minimis exemption meaning small personal transactions would be exempt from these complex tax calculations making them simple to use like cash
Benefits Purpose Questions
5 Why is this proposal important
It removes a major barrier to using stablecoins in daily life If you dont have to worry about tracking tiny gains for tax forms stablecoins become a much more practical tool for payments which is what they were designed for
6 Who benefits from this safe harbor
Consumers People using crypto for purchases
Merchants Businesses accepting crypto payments
The Crypto Industry Provides regulatory clarity to encourage innovation in payment systems
The IRS Reduces the burden of processing millions of trivial tax calculations
7 Does this mean stablecoin transactions are completely taxfree
No The safe harbor is specifically for using stablecoins as