Cynthia Lummis digital asset tax bill seeks capital gain reforms
United States Senator Cynthia Lummis (R-WY) has introduced 'comprehensive digital asset tax legislation' that would provide, amongst other measures, exemptions on gains from digital asset transactions, an end to the so-called 'double taxation' of digital asset miners and stakers, and greater parity with how other asset types are treated.
On July 3, Senator Lummis—a prominent supporter of the digital asset space and chair of the Senate digital assets subcommittee—published a bill to amend the Internal Revenue Code of 1986 to reform the treatment of digital assets, which the Wyoming Republican claimed would 'generate approximately $600 million in net revenue during the 2025-2034 budget window.'
The legislation proposes several tax reforms to benefit the digital asset space, whilst bringing the asset class more in line with the treatment of other securities and commodities in certain areas .
'In order to maintain our competitive edge, we must change our tax code to embrace our digital economy, not burden digital asset users,' said Lummis. 'This groundbreaking legislation is fully paid-for, cuts through the bureaucratic red tape and establishes common-sense rules that reflect how digital technologies function in the real world.'
She added that U.S. lawmakers 'cannot allow our archaic tax policies to stifle American innovation, and my legislation ensures Americans can participate in the digital economy without inadvertent tax violations.'
Tax exception for small transactions
First on the list of changes would be a 'de minimis exclusion' from taxation for digital asset gains or losses of $300 or less, with a $5,000 yearly total cap—unless 'the sale or exchange is for cash or cash equivalents' (including payment
stablecoins), property used in active trade or business, or property held for income production.
'This provision recognizes the impracticality of tracking every small digital asset transaction, such as buying coffee with Bitcoin, which creates enormous compliance burdens for ordinary users,' said a press release from Lummis' office, published last July 3. 'The $300 threshold strikes a reasonable balance between tax compliance and practical usability of digital assets as a medium of exchange.'
This proposal aims to boost the market for small digital asset transactions and payments, and would be especially beneficial to micropayment markets.
Mining and staking
Another significant proposal in the bill aims to end the controversial 'double taxation' of digital asset miners.
Under the IRS's existing rules, a U.S. taxpayer who successfully mines digital assets must treat the 'fair market value' of the recently created assets as gross income at the moment it is 'created'—meaning, the creation of the asset triggers a taxable event. However, when the miner later sells or exchanges those assets, a second taxable event occurs on any appreciation or loss over the original value at the time of sale.
In other words, digital asset miners are effectively being taxed twice on the same assets under current U.S. tax rules—first at creation and then again at disposition. Lummis seeks to end this double taxation by amending the rules to make mining and staking income not recognized until the sale or disposition of the produced assets (the second taxable event), and treat it as ordinary income when recognized.
'This aligns the taxation of mining and staking rewards with the actual realization of economic benefit, rather than forcing recognition based on volatile and often uncertain fair market values at the time of receipt,' said the press release. 'The approach prevents cash flow problems where taxpayers owe taxes on assets they haven't sold and may not be able to liquidate easily.'
Aligning with other asset classes
Further notable changes proposed by the bill include expanding securities lending rules to include digital assets, which prevents a result where temporarily lending digital assets would trigger immediate tax consequences and potentially discourage legitimate lending markets in digital assets—a situation that Lummis described as 'absurd.'
Another reform involves closing an 'unfair loophole' where digital asset investors could engage in tax-loss harvesting
strategies—whereby an investor sells an asset at a loss to offset capital gains taxes—unavailable to traditional securities investors.
This can be done for gaming capital gains tax, but also as a form of 'wash trading,' in which a trader sells a security at a loss and buys a 'substantially identical' security within 30 days before or after the sale—a practice that can be used to mislead investors into believing that trading volumes for a security are higher than they really are.
Senator Lummis' bill proposes adding digital assets to an IRS rule that bars taxpayers from deducting from their taxable income losses that result from wash trades of securities; an exception was included for dealers and hedging transactions.
The bill would also allow dealers and traders in digital assets to elect 'mark-to-market treatment,' also known as 'fair value accounting,' whereby the balance sheet shows assets at their fair market value, which may be higher or lower than cost.
'This provides digital asset dealers and traders with the same tax treatment available to their securities and commodities counterparts, eliminating arbitrary discrimination based on asset type,' said Lummis' announcement.
Lastly, the proposed legislation would exempt actively traded digital assets from 'qualified appraisal' requirements for charitable contributions, thus removing 'an unnecessary bureaucratic barrier that has discouraged charitable giving of digital assets.'
Based on the current IRS rules, donations of non-cash assets—whether commodities, securities, or digital assets—valued at more than $5,000 generally require a 'qualified appraisal' to prove that the stated value of the assets is accurate. However, publicly traded securities are exempt, as their fair market value can be readily determined from the current trading price.
According to Lummis' bill, digital assets should also be exempt, as they often have readily determinable fair market values through active trading. Removing this requirement, suggested the Senator's press release, would encourage philanthropy while recognizing that actively traded digital assets should be treated similarly to publicly traded securities for valuation purposes.
The tax reform bill will now head into the long U.S. legislative process, beginning with debate and subsequent vote in the Senate, at an as-yet-unspecified time in the next few months.
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