What the Proposed PARITY Act Would Mean for Your Crypto Tax Strategy

A bipartisan bill introduced in May 2026 would close the gap between how the IRS treats stocks and how it treats digital assets. If it becomes law, the strategy most crypto investors currently use to realize losses on paper, then immediately re-enter the same position, would no longer work.

The bill is called H.R. 8899, the Digital Asset PARITY Act. It has not passed. It has not left committee. But it is real, it is bipartisan, and it deserves a careful read before year-end tax planning season.

Here is what it says, where it stands, and what defensible record-keeping looks like whether Congress acts or not.

What Happened: H.R. 8899 in Plain Language

The Digital Asset Protection, Accountability, Regulation, Innovation, Taxation, and Yields Act, known as the PARITY Act, was introduced on May 19, 2026, by Rep. Max Miller (R-OH) and Rep. Steven Horsford (D-NV), with original cosponsors Rep. Suzan DelBene (D-WA) and Rep. Mike Carey (R-OH).

It was referred to the House Ways and Means Committee on the same day. As of this writing, no markup or floor vote has occurred.

The bill contains five substantive tax provisions:

1. Wash Sale Rule (IRC §1091 Extension)

Under current law, the wash sale rule applies to stocks and securities: if you sell an asset at a loss and buy a "substantially identical" asset within 30 days before or after the sale, the loss is disallowed. Digital assets are not currently subject to §1091. The PARITY Act would extend the wash sale rule to cover them.

2. Constructive Sale Rule (IRC §1259 Extension)

Currently, a taxpayer can enter offsetting positions in digital assets without triggering a taxable event, a strategy unavailable for most securities. The bill would extend §1259 to close that gap.

3. Securities Lending Treatment (IRC §1058 Extension)

The bill would expand §1058 treatment to qualifying digital asset loans, bringing them in line with how stock-lending arrangements are taxed.

4. Mark-to-Market Election (IRC §475)

Active traders and dealers in digital assets would be allowed to elect mark-to-market accounting, treating positions as if sold at year end, the same election available to securities dealers.

5. Staking and Mining Income Deferral

Taxpayers could elect to defer recognition of staking and mining reward income for up to five years.

Where the Bill Actually Stands

This section matters more than the provisions above.

H.R. 8899 is pending in committee. The Ways and Means Committee has not scheduled a markup. No floor vote has occurred. The bill is not law.

For comparison, the CLARITY Act (a separate, market-structure bill that addresses digital asset classification rather than taxation) moved faster. Senate Majority Leader Thune filed cloture on the CLARITY Act on August 8, 2026, with a cloture vote scheduled for September 15, 2026, at 2:15 PM ET. That bill was pushed past the August recess at Democrats' request.

The PARITY Act is further behind. It is reasonable to expect that any enactment, if it happens, would include a prospective effective date with transition guidance. But that guidance does not exist yet, and no legislative timeline is guaranteed.

Why the Wash Sale Provision Matters for Tax-Loss Harvesting Today

Tax-loss harvesting is the practice of selling a position at a loss to realize a deductible loss, then re-entering a similar or identical position to maintain market exposure. For stocks, the wash sale rule is the binding constraint: sell AAPL at a loss, buy it back within 30 days, and the loss is disallowed.

For crypto, that constraint does not currently exist. A taxpayer can sell ETH at a loss on Monday and buy it back Tuesday. The loss is currently deductible and the position is re-established. This is legal under current law.

If the PARITY Act's §1091 extension is enacted, that strategy would end. A 30-day window would apply. The loss would be disallowed if the same or a substantially identical digital asset is repurchased within the window.

That shift would affect not just ETH-to-ETH harvesting, but any pairing that Treasury determines to be "substantially identical," a category that is not yet defined for digital assets.

The Open Question: Wrapped, Bridged, and Liquid-Staked Tokens

The most important unresolved question under the proposed wash sale extension is also the most common practical question for active DeFi participants: does swapping ETH for stETH count as a wash sale?

What about wETH? cbETH? An ETH position bridged to a different chain?

Under the existing wash sale rule for securities, "substantially identical" is determined by economic substance: whether the two instruments represent effectively the same investment exposure. Treasury has issued guidance for specific securities scenarios over decades of case law and revenue rulings. None of that exists yet for digital assets.

If the PARITY Act passes, Treasury would need to issue guidance defining "substantially identical" in the digital asset context. Until that guidance exists, the practical application to liquid-staking derivatives, bridged tokens, and protocol-native wrapped assets is genuinely unresolved. Anyone representing certainty about how those pairings would be treated is speculating.

What this means for planning: the most defensible position today is to document the economic rationale for any token swap that occurs within 30 days of a loss realization, not because the rule applies now, but because the documentation will matter if the rule is enacted and applied retroactively or prospectively with a short lookback window.

Audit Readiness: Why Records Matter More, Not Less, While This Is Pending

Pending legislation has a predictable effect on audit risk: it draws examiner attention to the transactions the legislation targets, before the legislation passes.

IRS final regulations on broker reporting make the enforcement direction explicit: brokers must report gross proceeds on digital asset transactions effected on or after January 1, 2025 (filed on Form 1099-DA starting with 2025 returns), with cost-basis reporting following for transactions on or after January 1, 2026. That created a paper trail that did not previously exist for most on-chain transactions. Notably, the same final rules grant only temporary reporting exceptions for wrapping, staking, and lending transactions, pending further guidance. That is the same unresolved territory the wash-sale provision's "substantially identical" question would create.

Wash-sale harvesting strategies implemented at scale, documented poorly, and later subject to scrutiny under proposed rules create the highest-risk profile.

The audit readiness argument is not about the PARITY Act passing. It is about the fact that the on-chain record of a transaction is permanent, and that the documentation supporting the tax treatment of that transaction should be equally durable.

Specifically:

• Cost-basis tracking needs to be accurate at the lot level, not estimated. FIFO, HIFO, and specific identification produce materially different outcomes in volatile markets. The method needs to be applied consistently and documented.

• Transaction classification matters for each event: is a staking reward income upon receipt or upon sale? How is a liquidity pool exit treated? The position a taxpayer takes on these questions should be documented, not reconstructed from memory.

• Cross-chain activity is the most frequent documentation gap. A bridge transaction, a wrapped token redemption, or a cross-chain swap often generates no third-party tax document. The taxpayer's own records are the only record.
  
  

None of this changes depending on whether the PARITY Act passes. The recordkeeping requirement exists now. The legislative development makes the argument for getting it right more urgent, not less.

What to Do Now

Whether the PARITY Act passes in its current form, is amended, or dies in committee, the practical guidance is the same:

1. Evaluate current positions before year-end. If tax-loss harvesting is part of your strategy, identify positions where the proposed 30-day rule would affect the timing. The window to act under current law closes when the law changes, and the change, if it comes, may not come with advance notice.
   
   

2. Document the economic rationale for token swaps. For any swap involving tokens that could be considered substantially identical under a future rule, such as wrapped tokens, liquid-staking derivatives, or bridged equivalents, document why the swap was made and what economic exposure changed as a result.
   
   

3. Reconcile on-chain activity against your tax records now, not in April. The gap between what happened on-chain and what a taxpayer's records reflect is almost always larger than expected. Identifying and closing that gap before year-end is the difference between a reconstructable position and an indefensible one.
   
   

4. Don't wait for finality to start tracking properly. The PARITY Act may not pass this session. The recordkeeping argument holds regardless.
   
   
   

DeFi Tax: On-Chain Data for Strategy and Audit Defense

DeFi Tax's reporting engine is built by Enrolled Agents, not developers guessing at tax code. It indexes and classifies on-chain activity at the transaction level, including cost basis, income events, protocol interactions, and cross-chain movements, so that both tax strategy and audit defense work from the same verified data layer.

If the PARITY Act passes the 30-day window, the substantially identical determinations and the position-level documentation requirements will all run through that same data. If it doesn't pass, the audit readiness argument stands on its own.

The record is on-chain. The question is whether your documentation matches it.

Start reconciling your on-chain activity →