Key Takeaways
- Senator Cynthia Lummis introduced a standalone crypto tax bill after her proposals were excluded from the major budget package.
- The bill exempts small crypto transactions from taxes, allowing up to $5,000 annually for everyday use without triggering capital gains tax.
- Miners and stakers could defer taxes until they sell their crypto rewards, easing cash flow issues.
- The bill aligns crypto rules with traditional finance, covering lending, donations, wash-sale rules, and mark-to-market accounting.
- Despite strong industry support, the bill faces hurdles and may struggle to get floor time in a packed Senate schedule.
Senator Lummis Introduces Standalone Crypto Tax Bill After Budget Exclusion
In a major move for the digital asset industry, U.S. Senator Cynthia Lummis has submitted a draft bill to the Senate, seeking to reform the current framework of cryptocurrency taxation.
Unfortunately for the crypto industry, Lummis’s reforms were left out of the Senate’s most recent budget reconciliation package, known as the “One Big Beautiful Bill,” which is a key component of President Trump’s $3 trillion-plus spending plan.
Lummis now faces the challenging task of advancing her proposals through regular legislative channels, where individual bills compete for limited floor time and face heightened scrutiny.
With her effort, Lummis is seeking to bring clarity and modernization to how digital assets are treated by the U.S. Internal Revenue Service (IRS). It proposes to offer relief for small-scale users, miners, and stakers, while setting a clearer framework for institutional adoption.
Revolutionary Framework for Everyday Crypto Users
The legislation includes provisions that may totally reshape how Americans use digital currencies. Central to Lummis’s approach is the de minimis exemption that would exclude every crypto transaction involving capital gains of $300 or less (capped at $5,000 annually) from taxation. This change would allow users to buy everyday items — like a cup of coffee or groceries — with Bitcoin (BTC) or Ethereum (ETH) without worrying about complex tax obligations.
Under current guidelines, routine payments using digital assets mean tax reporting requirements, and this discourages the use of crypto. According to experts, the annual exemption cap of $5,000 will ensure the benefit remains focused on everyday users rather than large-scale traders seeking tax evasion.
Mining and Staking Industries Can Gain Critical Tax Deferrals
Another major pain point addressed by the bill targets crypto miners and validators. Lummis proposes allowing taxes on mining and staking rewards to be deferred until the assets are actually sold. Currently, the IRS requires taxpayers to report these rewards as income when they’re received, which can lead to cash flow challenges, especially when users owe taxes on assets they haven’t yet converted to cash.
Under the Lummis’ framework, miners and validators would only pay income tax when they actually dispose of their earned tokens. This change would tax crypto rewards only when they’re sold, instead of when they’re received, making taxes match actual profits.
Industry leaders support this provision as it is crucial for keeping mining operations competitive in the U.S. The current rules have been pushing quite a lot of the activity to other countries.
The Overhaul Addresses Lending and Charitable Activities
The legislation also extends securities lending rules to digital assets, making crypto lending non-taxable, similar to traditional finance (TradFi). This could unlock liquidity in decentralized finance (DeFi) markets. Additionally, the bill removes appraisal requirements for charitable crypto donations, encouraging philanthropy. “These changes align digital assets with stocks, fostering fairness,” Lummis emphasized in a statement.
Furthermore, the bill also aims to close a major tax loophole by applying the IRS’s wash-sale rule to crypto. The bill applies the standard 30-day wash sale rule to digital assets, preventing investors from selling tokens at a loss and quickly repurchasing them while claiming tax deductions.
Furthermore, crypto traders would also be allowed to use mark-to-market accounting, similar to what’s already available for securities and commodities markets. By choosing this option, trading businesses can report income in a way that better reflects their actual profits and losses, bringing crypto in line with other markets.
Political Challenges Mount Despite Industry Support
The Congressional Joint Committee on Taxation estimates the package would generate approximately $600 million in net revenue through 2034, providing fiscal justification for the reforms.
Digital asset taxation has become a contentious issue for the U.S. crypto industry. The current system often creates double taxation scenarios and compliance burdens that discourage mainstream adoption. If passed, this legislation would:
- Reduce friction for everyday crypto use.
- Make staking/mining more profitable.
- Spark bigger institutional interest.
- Lead to higher adoption and an increase in on-chain activity.
- Provide potential price support, especially for BTC and ETH
The legislation arrives at a time when Congress shows increased receptiveness to digital asset legislation. The Senate recently passed stablecoin framework legislation, while House panels have advanced both stablecoin and crypto market oversight bills.
Read More: CLARITY Act Crypto Bill gets Clearance from US Lawmakers
