The U.S. encryption tax reform draft is out! The tax exemption amount is up to 5,000 dollars, and charitable donations can be tax-deductible.

Crypto-friendly Senator Cynthia Lummis submitted the latest draft of the "Crypto Assets Tax Reform" on July 4, attempting to push for separate legislation while excluding crypto provisions from the existing budget. She hopes to clarify the timing of taxation for activities such as miners' mining, staking rewards, and lending, and has proposed specific measures such as tax exemptions for daily microtransactions and charitable donations.

The independent version of the crypto tax reform draft has been released.

After the crypto-related provisions were not included in the latest Trump administration's "Big and Beautiful" tax reform bill, Lummis subsequently submitted a tax reform proposal targeting activities such as digital asset trading, Mining, staking, and lending. She stated:

"This draft has fully outlined financial sources, simplified government processes, and established tax laws that align with the logic of the digital age for taxation. We cannot allow outdated tax laws to stifle innovation in the United States."

She added that the draft ensures that the American public can participate in the digital economy with peace of mind, without inadvertently violating regulations without their knowledge.

Lummis's official content on the crypto tax reform proposal allows for a crypto tax exemption of up to $5,000 and introduces a deferred tax mechanism.

According to the content of the draft, each profit from a Crypto Assets transaction below 300 USD is exempt from tax, with a maximum annual exemption amount of 5,000 USD.

On the other hand, in the past, miners and stakers had to recognize income and pay taxes as soon as they received the tokens, which created cash flow pressure. If the assets depreciated later, they would also have to bear the losses. In this regard, the draft also clearly proposes a deferred taxation mechanism, which is:

"Only when the assets obtained are actually sold will they be included in taxable income, and such income will be classified as ordinary income."

Regarding airdrops and forks, the execution details will be set by the tax bureau.

Stake lending income is subject to tax, and wash trading is included in crypto tax regulations.

Regarding crypto lending, the draft indicates that if the lending is conducted through eligible DeFi or CeFi protocols, then the process of lending out or returning assets will not be regarded as a transaction, and therefore will not be immediately taxed. However, the interest earned by users from lending is subject to taxation, but it will only be taxed when the user actually receives it, and rewards from forks and airdrops will be included in subsequent regulations.

In addition, the draft also strengthens measures against long-standing tax loopholes, extending the clause "wash trading losses cannot be deducted" to regulations on Crypto Assets and derivatives. However, stablecoins like USDC and USDT, which have payment functions and stable prices, will not be subject to this restriction and can recognize losses.

( Note: Wash trading, also known as wash sale, refers to the practice where users sell tokens at a loss to pretend they are losing money, allowing them to pay less tax when filing. However, just a few days later, they buy back the same tokens, never actually leaving the market, and doing this solely to reduce their tax liability. )

Clearly define the scope of digital assets, and crypto charitable donations can be tax-deductible.

In terms of definition, the draft also clearly defines the scope of "digital assets" (Digital Asset), which includes:

Crypto Assets, stablecoins, futures, options and other derivatives are all digital assets.

Tokenized financial products continue to use existing financial tax laws and are not included in the regulations of crypto tax laws.

In terms of taxation, the draft grants active market traders ( enterprises or individuals ) the right to choose the "market price valuation system," which means:

"At the end of each year, calculate the value and gains or losses of crypto assets using the market price at that time, without waiting until the actual transaction to pay taxes."

It helps align with traditional financial tax reporting systems, allowing changes in the book assets to be timely reflected in tax processing. The draft concludes by stating that as long as users donate "high liquidity" crypto assets to compliant charitable organizations, they can deduct taxes based on the market value at the time of the donation.

This article discusses the new US crypto tax reform draft! The tax exemption amount is up to 5,000 dollars, and charitable donations can be tax-deductible, first appearing in Chain News ABMedia.