Trump's New Economic Adviser Hints in Friendly Tax Policy for Crypto Investors

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President Donald Trump's new economic advisor has his sights set on lowering the capital gains tax rate, a move that would prove to be a massive blessing to cryptocurrency investors.

Earlier this week, Trump announced that he had tapped Larry Kudlow to become the new White House economic adviser, filling a post left vacant by outgoing adviser Gary Cohn.

Kudlow, a former Bear Stearns economist and CNBC contributor, said during a lengthy interview with his former community that he wishes to implement «stage two» of the White House's tax reform, a reform package that he says should include a lower capital gains rate.

A lower capital gains rate would probably be welcomed by cryptocurrency traders and investors because the US Internal Revenue Service (IRS) classifies cryptocurrencies as «property» for tax purposes.

Whenever a US resident disposes of their cryptocurrency holdings — whether by selling it or using it to purchase the proverbial cup of coffee — he or she is supposed to create a record of the transaction and report to the IRS any gains or losses realized at the time of disposal.

Net profits are taxed as capital gains, rates for which change both on the income level of the person and how long he or she held the investment.

Short-term gains — which include investments held for less than a year — are taxed at exactly the same rate as the filer's ordinary income, while long-term investments receive a more favorable tax treatment.

Particular high-income people may also be subject to a 3.8 percent surtax.

Previously, trading involving cryptocurrencies was likely not a taxable event, because it was considered a «like-kind» exchange (The IRS hasn't given definitive advice on this, but this is the position that many tax analysts have obtained).

However because of provision in last year's tax reform, these like-kind exchanges trigger economic events for all transactions which occur after Jan. 1, 2018.

This could prove hazardous for many cryptocurrency traders, especially those that deal in high-volatility small cap coins. An investor or dealer could realize a taxable event when exchanging Bitcoin for an altcoin, for example, and he would still face that tax liability even when the altcoin bet later becomes worthless.

Lowering the capital gains rate would mitigate that danger — at least somewhat — and it would also offer long-term holders with the ability to take money off the table without having to put so much of it in Uncle Sam's coffer.