Getting Crypto Tax Reform Right Means Prioritizing Neutrality

Investment in digital assets, long thought of as a niche interest reserved for enthusiasts, has broken into the mainstream. In 2026, about one in five US adults report being invested in or using cryptocurrency.

The market capitalization of cryptocurrency grew tenfold from mid-2020 to its late-2025 high. Yet, crucial questions remain on the financial, regulatory, and taxA tax is a mandatory payment or charge collected by local, state, and national governments from individuals or businesses to cover the costs of general government services, goods, and activities. treatment of digital assets. Ideally, the tax system would not be a deciding factor for use or investment in digital assets. This would require removing administrative complexity and ambiguity while avoiding tax treatment that prefers or penalizes digital assets over other investment opportunities.

New Proposals to Revise Tax Treatment of Digital Assets

In June, the House Ways and Means CommitteeThe Committee on Ways and Means, more commonly referred to as the House Ways and Means Committee, is the chief tax-writing committee in the US. The House Ways and Means Committee has jurisdiction over all bills relating to taxes and other revenue generation, as well as spending programs like Social Security, Medicare, and unemployment insurance, among others. released a set of proposals to establish a framework for digital asset taxation that would properly situate digital assets into broader tax law. The committee is not starting from a blank slate, as the Internal Revenue Service (IRS) has treated virtual currency as property since 2014, and the debate since has centered on the complexity and confusion taxpayers face.

Table 1. Digital Asset Tax Reform Proposals Under Consideration by the US House Ways and Means Committee, Summer 2026

Source: US House Ways & Means Committee, “New Legislation Modernizes Tax Rules for Digital Assets, Improving Access to a Growing Market and Maintaining America’s Competitive Advantage,” Jun. 9, 2026; Tax Foundation summary.

Part of the challenge surrounds whether digital assets should be treated more like a currency or an investment asset. Currently, they are treated like investment assets: underlying gains can trigger tax liability upon sale, and this can create issues for taxpayers who use digital assets as currency to buy goods and services.

Some of the Ways and Means proposals are straightforward extensions of extant tax law. For example, digital assets are often not subject to wash sale rules governing other types of investments, which prohibit taxpayers from timing tax losses strategically by selling and repurchasing identical assets in quick succession.

Extending wash sale rules to digital assets may improve tax neutrality on the margin, but even this relatively straightforward change should consider features unique to digital assets that could complicate things in practice.

In the case of wash sale rules, for example, defining when digital assets have been identically repurchased is trickier in practice than on a whiteboard. Policymakers should still aim to improve tax neutrality for digital assets, but they should be cognizant of asset-specific factors that could make administration more complicated for taxpayers. The Tax Clarity for Mining and Staking Act works through this by using the concept of substantial identity, rather than simply relying on identical repurchases of digital assets within the proposed rules. 

Other proposals to modernize digital asset tax treatment straightforwardly improve simplicity and reduce administrative burdens. For example, proposals to reduce paperwork requirements for certain transactions or extend mark-to-market accounting for digital asset traders simplify compliance and align treatment with other investments.

Deferral for Mining and Staking Rewards and Tax Neutrality

Lawmakers also face challenges in determining how to treat different types of activity related to digital assets beyond just extending analogous treatment to digital assets. For example, taxpayers may “mine” cryptocurrency by using computing resources to validate certain transactions and earn crypto assets, or may be involved in crypto “staking” by using digital assets as collateral to validate blocks of transactions.

The Tax Court has determined that income derived from staking is taxable income. As such, the income is taxed in the year it is earned once the taxpayer gains control over the rewards. The Tax Court also rejected the argument that the rewards were self-created, undermining the idea that digital asset staking reward generation is akin to planting crops on farmland.

The proposed Tax Clarity for Mining and Staking Act would let taxpayers elect to treat digital assets earned from mining and staking activity like self-created property. Under the proposal, instead of owing tax in the year the rewards are earned, taxpayers could defer tax on mining and staking income until the assets are spent or sold.  

Deferral as a general tax matter presents challenging trade-offs for policymakers. It encourages lock-in of assets with deferred tax liability (where taxpayers hold onto assets to defer tax liability) and delays revenue collections, putting pressure on other sources of tax revenue. On the other hand, an ideal tax system that targets consumption rather than income would not have to deal with the timing of earned income.

One concern policymakers should consider is horizontal neutrality across different types of assets. Taxpayers earning similar returns from other financial products must report the returns as taxable incomeTaxable income is the amount of income subject to tax, after deductions and exemptions. Taxable income differs from—and is less than—gross income.  . For example, interest earned on savings accounts is included in taxable income for the year it is earned. If taxpayers can defer digital rewards, that deferral advantage may distort saving behavior for tax purposes.

Proposals to provide a de minimis exemption for digital asset capital gains raise similar neutrality concerns. The idea is that certain routine transactions using digital currency should not trigger capital gains liability, reducing the administrative and financial friction surrounding the use of digital assets as a currency.

The Ways and Means proposals include a limited de minimis threshold for certain types of transactions. A separate proposal by Sen. Cynthia Lummis (R-WY) would go further, providing exclusions of up to $300 per transaction and up to $5,000 per year in capital gains. This idea is analogous to the existing Internal Revenue Code Section 988(e) that excludes up to $200 in gains from personal transactions in foreign currency. 

While a de minimis threshold would reduce friction for using digital assets as currency, it would worsen horizontal neutrality by providing preferential tax treatment for qualifying digital assets over other types of investments. Lawmakers should think more broadly about a de minimis threshold, designing one so that it does not become a special carveout for digital asset investment gains.

Rather than providing deferral or a de minimis exemption for a narrow set of activity, a comprehensive effort to move away from taxing income and toward taxing consumption would more fundamentally resolve these issues. The timing of when income is earned, the nature of the underlying income, and horizontal treatment across assets become irrelevant if the tax baseThe tax base is the total amount of income, property, assets, consumption, transactions, or other economic activity subject to taxation by a tax authority. A narrow tax base is non-neutral and inefficient. A broad tax base reduces tax administration costs and allows more revenue to be raised at lower rates. focuses on consumption of income rather than when it is earned.

Conclusion

The taxation of digital assets is ripe for reform. Proposals in the House would improve simplicity and reduce administrative burdens. As policymakers pursue reforms, they should prioritize neutrality between digital assets, legacy investment assets, and novel opportunities that have yet to mature.

Ultimately, a broader effort toward a consumption taxA consumption tax is typically levied on the purchase of goods or services and is paid directly or indirectly by the consumer in the form of retail sales taxes, excise taxes, tariffs, value-added taxes (VAT), or income taxes where all savings are tax-deductible. system would substantially reduce the distortions and trade-offs policymakers are navigating between digital and traditional assets alike.

Share this article

Twitter
LinkedIn
Facebook
Threads
Email
Print