President Donald Trump is hinting at capital gains reforms to change the way capital gains are calculated.
Whenever a person sells bonds, stocks, or cryptocurrencies, the profits gained are considered to be capital gains according to the IRS. These gains are then taxed based on the person’s income and the time duration the person held on the investment.
Discussing capital gains indexing, Trump stated that this is something that will help the rich while he was looking to do something for the working community.
Capital gains reforms: How would inflation indexing affect crypto investment?
John Madison of Dayspring FInancial Ministry explained this in the following method.
Let’s assume that a person buys a Bitcoin for ten thousand dollars ($10,000) and sells it five years later for fifteen thousand dollars ($15,000). The profit of five thousand dollars ($5,000) would be considered a long-term investment and taxed as such. However, under inflation indexing, the capital gain would be considered as four thousand dollars ($4,000), and as such, the tax will be lower.
However, for users to earn tax savings, they will need to hold onto their investments for a very long period of time as the inflation rate remains very low.
Capital gains reforms: Investors’ views
Sang lee of Konstellation believes that this will have a very low impact for Bitcoin investors who have earned large sums of profit over short periods of time. Moreover, cryptocurrency investors do not think of taxations as a primary concern when investing.
Lee believes that if anything, these reforms are more likely to encourage users to hold onto their investments for longer periods of time.
On the other hand, Kevin Johnson of Tagomi digital asset brokerage believes that the reforms would affect cryptocurrencies similar to any other investments.