Tax law researchers released a study proposing sweeping changes to existing tax law that would prevent crypto investors from deducting losses against capital gains.
According to the researchers, “losses from one type of activity should not be used to offset or shelter income from another activity.” Essentially, this suggests that cryptocurrency should be disenfranchised from other capital gains deductions.
However, the researchers acknowledge that other capital losses are not given similar treatment, stating that currently a"loss from the sale or exchange of any capital asset can offset gain from the sale or exchange of any other capital asset." As to why cryptocurrency losses shouldn’t be given the same taxation consideration, the authors state that by sharing risks with cryptocurrency investors in offering loss deductions on capital gains, the government may be stifling the economy and harming the cryptocurrency market:
“This risk-sharing can encourage investment in cryptocurrency and away from other investment activities of valuable economic significance. Risk sharing can also encourage investors to suddenly exit the crypto industry, which can harm legitimate exchanges and remaining investors." Despite the apparently subjective conclusion, the authors acknowledge that preventing taxpayers from applying cryptocurrency losses to other capital gains could harm investors who, under the status quo, would otherwise be entitled to the same taxation relief and recovery as those suffering similar asset losses unrelated to cryptocurrency.
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