Rep. Jodey Arrington has introduced the Applying Existing Tax Anti-Abuse Rules to Digital Assets Act, which would extend federal wash sale restrictions to cryptocurrency transactions involving assets such as bitcoin and ether.
Investors who sell an asset at a loss can generally use that capital loss to offset capital gains. When losses exceed gains, up to $3,000 can be deducted from regular income, with any remaining losses carried into future years. Existing wash sale rules restrict that treatment for stocks, bonds and other securities when an investor buys the same or a substantially similar security within 30 days before or 30 days after the sale.
Direct cryptocurrency holdings generally fall outside those restrictions because the federal government treats crypto as property rather than as a security. That allows an investor to sell a digital asset at a loss, buy it back immediately and retain the tax benefit associated with the loss without materially changing the portfolio position.
Arrington’s bill, introduced in June, would close that gap by applying the existing anti-abuse rules to digital assets. The proposal follows earlier efforts by the Biden administration and congressional Democrats to make the same change during the pandemic era.
The U.S. Treasury Department estimated in 2024 that applying wash sale rules to digital assets would raise nearly $24 billion over a decade. The proposal therefore offers lawmakers a potential budget-raising measure while seeking to align the tax treatment of direct cryptocurrency holdings with that of traditional securities.
Rep. Ron Estes also supported extending the rules at a June hearing of the House Ways and Means Committee. He said digital assets should not be treated better or worse than similar financial assets and argued that consistent rules would provide greater clarity for investors and traders. The hearing examined six recent bills concerning the taxation of digital assets.
The tax proposal is developing alongside wider cryptocurrency legislation. The U.S. Senate is debating the Clarity Act, a broader measure that would, among other things, prevent federal officials from issuing digital assets.
The timing also matters because bitcoin has lost about half its value since October 2025. Falling asset values make capital-loss treatment more relevant to investors seeking to offset gains elsewhere or carry unused losses into future tax years.
The current position is not the same for every form of crypto exposure. Bitcoin exchange-traded funds and other crypto ETFs are securities and are therefore likely already subject to wash sale rules. The proposed change is principally relevant to investors who hold cryptocurrency directly.
If enacted, Arrington’s bill would restrict the ability to sell a direct crypto holding at a loss, repurchase the same or a substantially similar asset within 30 days before or 30 days after the sale, and still claim the associated tax deduction. The measure would narrow a tax advantage currently available to direct crypto investors and bring that treatment closer to the rules governing traditional financial assets.
