Senator Cynthia Lummis introduced a groundbreaking bill on July 3 that aims to overhaul the tax regulations surrounding cryptocurrency transactions. The bill proposes significant changes to the Internal Revenue Code, outlining new guidelines for calculating, deferring, and reporting taxable income related to digital assets.
One of the key provisions of the bill is the introduction of statutory definitions for “digital asset” and “actively traded digital asset.” Under the proposed legislation, any cryptographically recorded unit of value would be classified as property, unless it replicates a traditional financial instrument.
The bill also includes a new section, §139J, which exempts gains or losses from transactions where tokens are used to pay for goods or services. However, there are limitations in place to qualify for this exclusion. Specifically, each transaction and any associated loss must remain under $300, and an individual’s annual gains from such activities cannot exceed $5,000. The dollar caps will be indexed for inflation by the Treasury after 2026, and the exclusion may be denied if a sale is deemed to be for the purpose of loss harvesting. Taxpayers will be required to maintain separate records for eligible transactions, and the exclusion will expire after the 2035 tax year.
Senator Lummis emphasized that the bill aims to streamline the tax process for crypto users and ensure compliance with the evolving digital economy. She described the legislation as fully funded and encouraged stakeholders to provide feedback. Reports indicate that the bill was initially considered as an amendment to the “One Big Beautiful Bill.”
In addition to these changes, the bill introduces market-facing rules that expand the securities-lending safe harbor to include “specified assets,” such as actively traded tokens. It also applies wash-sale loss disallowance to digital assets and derivatives, while granting the Treasury authority to monitor basis adjustments.
Furthermore, the bill addresses mining, staking, and charitable giving in the cryptocurrency space. It clarifies that income from block validation will not be included in gross income upon receipt, and miners and stakers will only recognize ordinary income when they sell reward tokens. The legislation also allows private foundations to accept appreciated, actively traded tokens with the same tax benefits as publicly traded stock.
Most of the provisions outlined in the bill, including the mining deferral and wash-sale expansion, are set to expire after 2035 to align with congressional budget rules. Overall, the bill represents a significant step towards establishing clearer tax guidelines for cryptocurrency transactions and ensuring compliance within the digital asset space.