U.S. House Pursues Tax Deferral Plan for Stablecoins and Staking

The U.S. House has prepared a bipartisan draft bill to clarify tax rules for stablecoin transactions and crypto asset staking rewards. It would create a tax safe harbor for stablecoin transactions meeting certain conditions and defer the timing of taxation for blockchain validation rewards.

According to Bloomberg on the 21st (local time), Republican Rep. Max Miller and Democratic Rep. Steven Horsford are jointly preparing a draft crypto tax framework. Both lawmakers are members of the House Ways and Means Committee and have direct influence over changes to tax law.

The draft would exempt capital gains tax on small regulated dollar-pegged stablecoin transactions under $200. However, it would not apply the same safe harbor to other crypto asset transactions such as Bitcoin (BTC) or Ethereum (ETH).

The taxation method for rewards generated during blockchain validation is also subject to adjustment. Current Internal Revenue Service (IRS) guidance taxes staking rewards at the time they are received. Republicans have raised concerns, saying this amounts to taxing unrealized assets.

In a statement, Rep. Miller said, "U.S. tax law has not kept pace with the development of modern financial technology," and "this bipartisan legislation is intended to provide clarity and fairness in crypto taxation."

Progressive Democrats within the party view staking rewards as compensation similar to earned income and argue the current tax regime should be maintained. The industry, however, has argued that taxation should be deferred until rewards are actually disposed of.

The draft is a compromise. Taxpayers could defer taxation on staking or mining rewards for up to five years and could choose to pay income tax based on the asset's fair market value at the end of the deferral period.

The draft also includes plans to bring crypto assets into a tax regime similar to securities. It would include foreign investors trading crypto through U.S. intermediaries in the capital gains tax exemption and would allow mark-to-market accounting that recognizes unrealized gains and losses as of year-end.

It would also apply wash-trade loss deduction limits to crypto trading and include provisions to block transaction structures intended for tax deferral.