House Lawmakers Propose Major Overhaul of Cryptocurrency Tax Framework

Bipartisan Plan Would Exempt Small Stablecoin Transactions While Deferring Mining and Staking Rewards Taxation

In a significant development for cryptocurrency investors and users, House Representatives Max Miller and Steven Horsford have unveiled a bipartisan draft framework aimed at modernizing how digital assets are taxed in the United States. The proposal, which represents one of the most comprehensive attempts to address taxation issues in the rapidly evolving crypto space, introduces several key reforms including a safe harbor for small stablecoin transactions and a deferred taxation approach for blockchain validation rewards.

Small Stablecoin Transactions Would Gain Capital Gains Tax Exemption

The cornerstone of the proposed framework is an exemption from capital gains taxes for regulated, dollar-pegged stablecoin transactions under $200. This provision specifically targets everyday uses of stablecoins, recognizing their growing role in the digital payment ecosystem. According to the Bloomberg report detailing the draft, this tax relief would not extend to other cryptocurrency transactions, which would continue to operate under existing tax rules. This targeted approach reflects a nuanced understanding of how stablecoins function differently from more volatile cryptocurrencies, often serving as digital equivalents to the U.S. dollar rather than speculative investments.

“This proposal acknowledges the unique nature of stablecoins in the digital asset ecosystem,” explained financial technology analyst Miranda Holloway, who specializes in cryptocurrency regulation. “By exempting smaller transactions, lawmakers are recognizing that people increasingly use stablecoins for routine payments, not just investments. The $200 threshold captures most daily transactions while preserving tax obligations for larger transfers.”

The stablecoin exemption could have far-reaching implications for cryptocurrency adoption in everyday commerce. Currently, users must track and report capital gains or losses on every cryptocurrency transaction, regardless of size – a burdensome requirement that has hampered mainstream adoption. By removing this administrative hurdle for smaller stablecoin transactions, the framework could potentially accelerate their use in routine purchases and transfers.

Five-Year Tax Deferral Option for Mining and Staking Rewards Offers Compromise Solution

Another key element of the Miller-Horsford framework addresses the contentious issue of how to tax rewards earned through cryptocurrency mining and staking activities. The draft proposes allowing taxpayers to defer taxes on these rewards for up to five years – a middle-ground approach between immediate taxation and the tax-free treatment many industry advocates have sought. At the conclusion of this deferral period, the rewards would be taxed as income based on their fair market value at that time.

This provision attempts to resolve one of the most challenging aspects of cryptocurrency taxation: whether validators should pay taxes when they receive rewards (which they may not immediately sell) or only when they convert those rewards to fiat currency. The five-year deferral acknowledges both the cash-flow challenges faced by validators who might need to sell portions of their rewards simply to pay taxes, and the government’s interest in eventually collecting revenue on these earnings.

“The mining and staking rewards deferral represents a pragmatic compromise,” noted tax attorney Jonathan Winters, who advises clients on cryptocurrency compliance issues. “It gives validators breathing room to build their operations without immediate tax burdens, while ensuring the Treasury eventually receives its due. This approach recognizes the operational realities of blockchain networks without abandoning tax principles.”

The proposal comes amid growing industry pressure for clearer guidelines on how various cryptocurrency activities should be taxed. Currently, the IRS treats mining rewards as immediate income, a position that many in the industry have criticized as impractical given that rewards often remain illiquid for extended periods.

Framework Also Addresses Securities Treatment, Mark-to-Market Accounting, and Wash Sale Rules

Beyond stablecoin transactions and validation rewards, the Miller-Horsford framework tackles several other areas where cryptocurrency taxation has remained ambiguous or problematic. The proposal would explicitly bring digital assets under securities-related tax rules, providing clarity on their treatment for tax purposes. This could help resolve ongoing questions about which cryptocurrencies qualify as securities and how they should be taxed accordingly.

Additionally, the framework would permit eligible traders to use mark-to-market accounting for their cryptocurrency holdings – a method that allows for the recognition of unrealized gains and losses at the end of the tax year. This provision could streamline reporting for active traders while potentially offering more favorable tax treatment in certain scenarios.

Perhaps most notably for active cryptocurrency investors, the proposal would extend wash sale restrictions to digital assets. Currently, unlike traditional securities, cryptocurrencies are not subject to wash sale rules that prevent investors from claiming losses on assets they quickly repurchase. Closing this loophole would align cryptocurrency taxation more closely with traditional investment vehicles while potentially reducing tax-motivated trading behavior.

“These provisions represent a comprehensive attempt to integrate digital assets into the existing tax framework,” observed Dr. Elaine Chen, professor of financial technology at Georgetown University. “By addressing securities treatment, accounting methods, and wash sale rules, the lawmakers are constructing a more coherent system that treats cryptocurrencies as legitimate financial instruments rather than regulatory outliers.”

Bipartisan Approach Signals Growing Recognition of Cryptocurrency’s Importance in Financial Landscape

The bipartisan nature of the Miller-Horsford framework – with Representative Miller serving as a Republican from Ohio and Representative Horsford as a Democrat from Nevada – signals growing recognition across the political spectrum that cryptocurrency requires thoughtful regulatory treatment rather than dismissal or over-restriction. This collaborative approach mirrors similar bipartisan efforts in other areas of cryptocurrency regulation, suggesting that digital asset policy may increasingly transcend traditional political divisions.

Industry observers note that the framework’s balanced approach – offering certain tax reliefs while closing other loopholes – may help it gain traction among lawmakers from both parties. While previous cryptocurrency tax proposals have often leaned heavily toward either industry accommodation or strict enforcement, this draft attempts to address legitimate concerns from both regulators and market participants.

“The bipartisan framework demonstrates that cryptocurrency policy isn’t necessarily a partisan issue,” said political analyst Rebecca Thornton. “Both parties recognize the need to provide clarity without stifling innovation. The proposal acknowledges cryptocurrency’s growing role in our financial system while ensuring appropriate taxation – priorities that resonate across the political spectrum.”

As the framework moves through the legislative process, it will likely face modifications and challenges from various stakeholders. Industry advocates may push for more generous provisions, while tax authorities might resist certain exemptions. Nevertheless, the Miller-Horsford proposal represents a significant step toward a more coherent, practical approach to cryptocurrency taxation – one that acknowledges both the innovative nature of these technologies and their integration into the broader financial system.

Whether these provisions ultimately become law remains uncertain, but the framework has already succeeded in advancing the conversation about how digital assets should be taxed in an increasingly tokenized economy. For cryptocurrency users, investors, and the growing ecosystem of businesses built around blockchain technology, this proposal offers a glimpse of a potential future where tax rules recognize the unique characteristics of digital assets while maintaining fundamental principles of fiscal responsibility.