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- A tax loophole helps investors eliminate capital gains tax and losses on crypto investments
- Regulators are aware of such loopholes that are being exploited and soon plan to implement rules and regulations for the same
- Caveats prevent investors from exploiting small traders that are in the market for long term gains
Cryptocurrency comes under the property category in the United States of America that grants investors some benefits not prevalent in stocks or mutual funds. In the latter’s case, stocks once sold cannot be purchased the same day for a dip within a span of 30 days. However, crypto once sold can be purchased the very next minute due to investors being able to prune their tax exposure. Soon regulators plan to implement laws that may abstain investors from carrying out such activities.
Tax rules are different from those applied on stocks
When an investor purchases a stock from an exchange, the gains are taxed at the prevalent rates and in case of stocks sold for a considerate amount of loss, the investor is debarred from purchasing the same stock within the next 30 days. It is the wash-sale rule that prevents investors from taking part in a potential upside immediately after an exit from a portfolio of stocks. However, the same is not applied on cryptocurrencies like Bitcoin, Ethereum and XRP to name a few.
Losses incurred are not taxed as investors participate in a potential upside instantly. Moreover, the capital gains tax may be offset with a prudent transaction. Investors can offset an equal amount of capital gains tax and losses incurred in Bitcoin via purchasing the Bitcoin instantly after a loss. If the price of Bitcoin goes up the loss as well as the tax is covered up .
Loopholes are gaping at regulators to plug them
Such huge discrepancies do not stay away from market watch dogs especially the US SEC. It plans to restrict investors from such tax evasion activities. There are several countries that have designated crypto as a property rather than an investment class. Although previous transactions may not be overturned, new policies will restrict the scope of carrying out such activities.
Lastly, there are caveats already present that prevent investors from indulging in such activities. There is very little opportunity up for grabs but investors still do use it for their personal benefit.
With a background in journalism, Ritika Sharma has worked with many reputed media firms focusing on general news such as politics and crime. She joined The Coin Republic as a reporter for crypto, and found a great passion for cryptocurrency, Web3, NFTs and other digital assets. She spends a lot of time researching and delving deeper into these concepts around the clock, and is a strong advocate for women in STEM.
