CLARITY Ethics Deal: What the Proposed Crypto Tax Deferral Means for US Holders
A bipartisan ethics addendum to the CLARITY Act, the proposed US crypto market-structure bill, reportedly includes a provision that would require President Trump to divest his crypto-related businesses while allowing him to defer any resulting capital gains taxes. According to Bloomberg, that deferral could amount to savings in the millions, given the scale of the president's crypto holdings. For everyday US crypto holders trying to understand how crypto is taxed in the US, the proposal surfaces a set of rules that most people never encounter, and raises fair questions about how the tax treatment of a forced sale compares with a voluntary one.
What the Ethics Addendum Actually Proposes
Senators working to break the legislative deadlock over the CLARITY Act have been drafting an ethics addendum designed to address Democratic concerns about the president's financial conflicts of interest in crypto legislation. The core of that addendum, as reported by Bloomberg citing people familiar with the matter, has two parts: a divestiture requirement and a tax-deferral mechanism.
The Divestiture Requirement
Under the reported proposal, Trump would be required to sell his interests in crypto-related businesses. That is a significant obligation given the figures disclosed in his 2025 annual financial disclosure report, released in late June. That 927-page document showed the president received approximately $1.4 billion in income from crypto-related ventures during 2025. The largest single source was roughly $635 million in royalties linked to a licence agreement involving the Official Trump (TRUMP) meme coin. The family's decentralised finance platform, World Liberty Financial, was the second-biggest earner at around $588 million from token sale proceeds. A separate entity, DT Marks DEFI LLC, affiliated with Trump and certain family members, holds approximately 38% of the equity interests in World Liberty's parent company.
The Tax-Deferral Mechanism
The proposed addendum would let Trump defer capital gains taxes on any sales made to comply with the divestiture requirement. This is structurally similar to the certificates of divestiture that already exist under the Ethics in Government Act, which allow senior executive branch officials to sell assets required to be divested and roll the proceeds into permitted investments without triggering an immediate taxable gain. The Bloomberg report does not specify whether the proposal mirrors that existing mechanism exactly or creates a new one, but the practical effect would be the same: a sale that would ordinarily produce a large capital gains tax bill in the year of sale would instead have that liability deferred.
Why This Is Politically Contentious
Democratic senators have cited the president's crypto business interests as a central reason to oppose the CLARITY Act. Their concern is straightforward: a president who stands to benefit financially from legislation is conflicted when it comes to signing or shaping that legislation. The ethics addendum was meant to neutralise that argument by requiring divestiture. But the reported tax-deferral benefit introduces a new wrinkle. Critics are likely to question whether deferring the tax bill on a forced sale genuinely removes the financial incentive, or simply converts it from an equity gain to a deferred tax advantage. That debate will play out in Congress; it has no direct legal effect on how ordinary holders file their crypto tax returns today.
How Crypto Is Actually Taxed in the US Right Now
While the political story is specific to the president's situation, it is a useful prompt to revisit the baseline rules that apply to every US crypto holder.
The Property Classification
The IRS treats cryptocurrency as property, not currency. That single classification drives almost everything that follows. Every time you sell, exchange, or otherwise dispose of a crypto asset, you trigger a taxable event. The gain or loss is the difference between your cost basis (what you paid, including fees) and your proceeds.
Short-Term vs Long-Term Rates
If you held the asset for one year or less before selling, the gain is short-term and taxed as ordinary income, at the same rates as your salary. If you held it for more than one year, the gain is long-term and qualifies for the preferential capital gains rates of 0%, 15%, or 20% depending on your taxable income. High earners may also owe the 3.8% net investment income tax on top of that. These rates apply whether the sale is voluntary or, in theory, forced by a legal or regulatory requirement.
There Is No General Deferral for Ordinary Holders
This is where the contrast with the proposed ethics addendum becomes relevant. The certificate of divestiture mechanism under the Ethics in Government Act is available only to qualifying federal employees who are required by law to sell assets to avoid conflicts of interest. It is not available to private citizens or to holders who simply want to avoid a tax bill. If you sell crypto that has appreciated significantly, you owe capital gains tax in the tax year of the sale, full stop. There is no like-kind exchange rollover for crypto (the Tax Cuts and Jobs Act of 2017 restricted Section 1031 to real property only). You cannot defer simply by reinvesting the proceeds into other crypto.
What You Can Do to Manage the Tax Burden
There are legitimate strategies available to ordinary holders. Tax-loss harvesting, selling positions that are underwater to offset gains elsewhere in the same tax year, is the most widely used. Holding assets beyond the one-year threshold to access long-term rates is another. Charitable giving of appreciated crypto directly to a qualifying charity can eliminate the capital gains event entirely while producing a deduction. And timing sales across tax years can spread the liability. For a structured overview of these options, see our guide on how to legally reduce your US crypto taxes.
What CLARITY Could Change for Everyone
The ethics debate is the current headline, but the underlying CLARITY Act itself matters more to the long-term crypto tax landscape. The bill is primarily a market-structure measure, establishing which digital assets are securities and which are commodities and setting out which regulator has jurisdiction. But market-structure rules have direct tax consequences: the classification of an asset affects whether broker reporting obligations under the new Form 1099-DA apply, how wash-sale rules might eventually be extended to crypto, and how DeFi platforms are treated for withholding purposes.
We covered the background on Trump meets senators on the CLARITY Act when those discussions first became public. The ethics addendum is a newer development layered on top of that earlier activity.
Practical Steps for US Crypto Holders Now
Legislation is proposed, not enacted. Nothing in the CLARITY Act or the ethics addendum changes your filing obligations today. Here is what actually matters for your next return.
Track Every Transaction
The IRS requires you to report every taxable crypto disposal, regardless of size or whether you received a 1099. That means every sale, every crypto-to-crypto swap, and every use of crypto to pay for goods or services. Cost basis tracking across multiple wallets and exchanges is the single biggest practical challenge most holders face. A reliable crypto tax calculator that pulls transaction data directly from your exchanges and wallets will produce the gain and loss figures you need to populate Schedule D and Form 8949.
Check Your Holding Periods
Before you sell anything, confirm whether you have crossed the one-year threshold. The difference between a short-term and long-term rate can be substantial, particularly for higher earners. If you're close to the anniversary date, waiting a few weeks before selling can materially reduce the tax owed.
File Accurately and on Time
The IRS crypto question appears near the top of Form 1040 and must be answered honestly. Underreporting crypto income is an area of active IRS enforcement. If you're unsure how to file crypto taxes, start by gathering your complete transaction history, then use that data to calculate gains and losses. For context on IRS enforcement activity targeting crypto holders, see our piece on fake IRS letters targeting crypto holders, which covers what real IRS contact looks like.
Frequently Asked Questions
What is the CLARITY Act ethics addendum?
It is a proposal drafted by bipartisan senators to address concerns about the president's financial interests in crypto legislation. As reported by Bloomberg, it would require the president to divest crypto-related holdings while allowing capital gains taxes on those sales to be deferred.
Can ordinary US crypto holders defer capital gains tax on a sale?
No. The deferral mechanism discussed in the ethics proposal is linked to the certificate of divestiture process under the Ethics in Government Act, which applies only to qualifying federal employees required by law to divest. Private holders cannot defer crypto capital gains simply by reinvesting the proceeds. The like-kind exchange rules under Section 1031 were restricted to real property from 2018 onward and do not apply to crypto.
How is crypto taxed in the US at the moment?
The IRS treats crypto as property. Sales, exchanges, and other disposals are taxable events. Gains held for one year or less are taxed as ordinary income. Gains on assets held for more than one year qualify for long-term capital gains rates of 0%, 15%, or 20%, depending on your taxable income. Higher earners may owe an additional 3.8% net investment income tax.
Does the CLARITY Act change how I calculate crypto taxes today?
Not yet. The CLARITY Act has not been enacted. Your current filing obligations are unchanged. Once the bill passes, if it does, its market-structure provisions could affect broker reporting rules and potentially the scope of wash-sale rules for digital assets, but any such changes would be prospective.
What records should I keep to calculate crypto taxes accurately?
You need the date of every acquisition and disposal, the amount received or paid, the fair market value in US dollars at the time of each transaction, and the fees paid. This applies to every exchange, wallet, and DeFi protocol you have used. The IRS can request this documentation during an audit, so keeping it contemporaneously is far preferable to reconstructing it later.
Source: Cointelegraph