US President Donald Trump hints at capital gains reforms to change the way capital gains are calculated.
Whenever a person is selling bonds, stocks, or even cryptocurrencies, the profits are considered to be capital gains. These capital gains are taxed based on the person’s income and the duration he held onto the investment.
Talking about capital gains indexing, Trump stated that this would be better for the wealthy, and he is not looking to do that. He then added that he is looking to do something for the working community.
So how does indexing work for Bitcoin investments?
John Madison of Dayspring Financial Ministry explained this in the following way. Let’s assume that you buy a Bitcoin for ten thousand dollars ($10,000) then sell it five years later for fifteen thousand dollars ($15,000). The profit of five thousand dollars ($5,000) would be considered a long-term capital gain under current regulations. However, through indexing, the capital gain would be considered four thousand dollars ($4,000).
However, this holds little value for Bitcoin investors who have gained large sums over a short period of time. As the inflation rate is very low, a person would need to hold onto their investment for a very long time period to gain any tax savings.
Capital gains reforms: Cryptocurrency investors’ view.
The CEO of Konstellation, Sang Lee, stated that its effect would be negligible across the short periods of time. He also added that cryptocurrency investors do not consider taxation as a primary concern while investing.
On the other hand, Lee believes that this will encourage users to hold onto their cryptocurrencies for a longer period of time.
Meanwhile, Kevin Johnson of Tagomi digital asset brokerage believes otherwise. He stated that capital gains reforms would affect cryptocurrencies just as they would affect any other investment class asset.