What Exactly Is the CLARITY Act?
The CLARITY Act is the informal name for the Digital Asset Market Clarity Act of 2025, formally introduced as H.R. 3633. At its core, the bill is designed to solve one of the longest-running problems in the US crypto industry: uncertainty over who regulates what. For years, companies operated in a gray zone where the SEC and the CFTC both asserted authority in overlapping ways.
On May 29, 2025, House Committee on Financial Services Chairman French Hill introduced the CLARITY Act, which would establish a comprehensive regulatory framework for digital assets in the US. The lack of a unified regulatory framework has resulted in what many stakeholders describe as “regulation by enforcement,” creating legal uncertainty, constraining the participation of traditional financial institutions, and pushing innovation abroad.
How It Passed the House – and Where It Stands Now
On July 17, 2025, as part of “Crypto Week” in Congress and on the heels of the adoption of the GENIUS Act, the House of Representatives passed the CLARITY Act with bipartisan support. The CLARITY Act is a sweeping reform effort that passed the House in a 294-134 vote on July 17.
On the legislative front, the CLARITY Act is currently stalled, with Senate Banking Committee markup pushed to May 2026 at the earliest. Senate Banking Committee Chairman Tim Scott is targeting a potential markup of the CLARITY Act in May 2026. The Banking Committee’s draft must advance out of committee, and then the two Senate drafts must be reconciled and merged before going for a full Senate vote. Any Senate-approved bill must then be reconciled with the House CLARITY Act before a vote in the House is viable.
The Core Problem It Solves: SEC vs. CFTC
The CLARITY Act seeks to define and rationalize the boundaries of SEC and CFTC jurisdiction, curing a source of significant regulatory friction and legal uncertainty in recent years. The CLARITY Act would grant the CFTC “exclusive jurisdiction” over “digital commodity” spot markets, while maintaining SEC jurisdiction over investment contract assets.
The bill does not remove the SEC from crypto oversight entirely. Instead, it preserves SEC authority over certain primary market activities, particularly those involving fundraising, issuance, and registration-related disclosures. It also introduces limited exemptions designed to clarify when SEC registration applies and when it does not. This split approach is intended to reduce overlap while keeping investor protection mechanisms in place for activities that resemble traditional securities issuance.
How Digital Assets Will Be Classified Under the New Law
Lawmakers are creating a consistent framework for categorizing digital assets into three main types: digital commodities, overseen by the CFTC, include tokens tied to decentralized blockchains like Bitcoin. Investment contract assets, regulated by the SEC, cover tokens representing equity, debt, or similar rights. Payment stablecoins, supervised by banking regulators, must meet capital, custody, and anti-manipulation standards.
The CLARITY Act creates a specific definition of a digital commodity based on inherent characteristics of the digital asset. Core to that definition is that the asset’s value is derived from the use of the blockchain network to which it relates. This definition excludes certain financial instruments such as securities, derivatives, and payment stablecoins. It also excludes tokenized commodities and other digital assets that are neither commodities nor securities, such as digital collectibles.
What It Means for Your Crypto Taxes Directly
Investors and issuers should be mindful that even if a digital asset is regulated as a security or commodity under federal law, it will continue to be taxed as property unless and until the IRS issues new guidance or Congress enacts legislation to the contrary. That distinction matters. Classification changes how you’re regulated, but the tax treatment requires a separate act of Congress to change.
Under current law, the wash sale rule blocks stock investors from claiming a tax loss if they repurchase the same or substantially identical security within 30 days. Crypto is classified as property, not a security, which means that the rule does not apply. Traders have used this gap aggressively, selling a Bitcoin position at a loss to lock in a deduction, then rebuying immediately to maintain exposure. That is tax-loss harvesting, and for crypto holders, it has been completely legal.
A new proposal would apply wash sale rules to crypto for the first time, treating digital assets the same as traditional securities for tax purposes. It also includes a 30% excise tax on electricity used for crypto mining via the DAME tax, and a FATCA reporting requirement for US taxpayers holding more than $50,000 in foreign crypto accounts. Treasury estimates the wash sale change alone would generate $5.4 billion in revenue over ten years.
Form 1099-DA: The Tax Enforcement Tool Already Live
On April 15, 2026, the IRS formally implemented mandatory cost basis reporting for digital asset brokers. This is the single most important change to crypto tax compliance since the IRS first declared crypto was property in 2014.
The most immediate development for tax professionals and their clients is the arrival of Form 1099-DA, the IRS’s new information return for digital asset proceeds from broker transactions. This form applies to transactions occurring on or after January 1, 2025, with forms issued to taxpayers and the IRS beginning in early 2026. The IRS receives a copy of every 1099-DA, meaning the agency can now match reported crypto proceeds against a taxpayer’s return much as it does with stock sales. Clients whose returns do not reconcile with their 1099-DA data face CP2000 notices and potential audit exposure.
One of the most significant 2025 developments was the congressional repeal of the IRS regulations that would have required decentralized finance brokers to file Form 1099-DA. President Trump signed legislation on April 10, 2025, nullifying these rules under the Congressional Review Act. The repeal applied to DeFi brokers that operate almost entirely on blockchain infrastructure. This means that decentralized exchanges, non-custodial wallet providers, and similar permissionless infrastructure are not subject to 1099-DA reporting.
Staking, Mining, and DeFi: Where Tax Rules Get Complicated
If you receive staking rewards, the fair market value at receipt is generally treated as ordinary income at the time you gain control of the rewards. Later, when you sell or swap that asset, you calculate capital gain or loss based on the difference between the disposal value and the basis established at the time of receipt. Staking can therefore create two layers of tax reporting across time: income on receipt and capital gains on disposal.
The Lummis bill would provide that mining and staking rewards are not recognized as income until sold, with the amount treated as ordinary income. Both the PARITY Act draft and the Lummis bill offer more favorable treatment than the current IRS position, with the Lummis bill more generous than the PARITY Act draft. These proposals are still in draft form, but they signal where Congress wants to land on this contested question.
The Stablecoin Yield Standoff
Text has emerged revealing the CLARITY Act compromise worked out between members of the Senate Banking Committee, which would allow crypto firms to keep pursuing stablecoin reward programs. As expected, the text prohibits crypto firms from offering yield on stablecoin deposits if that yield is the functional or economic equivalent to banks’ offerings.
The text comes after months of negotiations between the crypto and banking industries, facilitated by the White House and Senators Thom Tillis and Angela Alsobrooks. Stablecoins and other digital assets are poised to compete directly with the banking system if the markup goes as the crypto industry wishes. In turn, this is a direct threat to hundreds of billions of dollars in interest and fee collection that traditional banks rely upon.
Criticism and What Critics Are Getting Right
Criticism of the bill falls into two main categories. Investor protection advocates, including groups representing state securities regulators, argue the bill could weaken protections or create gaps. They warn that narrowing SEC authority may reduce oversight in areas where retail investors are exposed.
National security and illicit finance groups have raised concerns that market structure reforms could create loopholes unless anti-money laundering requirements are strengthened. These critiques are likely to shape Senate negotiations, particularly around DeFi, mixers, and platform responsibilities. The CFTC has limited experience supervising retail-facing platforms and intermediaries, and its historical focus has been regulating derivatives markets, not spot commodities. The CLARITY Act would require the CFTC to stand up a full regulatory regime for spot digital commodities markets, including exchange supervision, broker-dealer regulation, and disclosure compliance.
What Happens If and When It Becomes Law
SEC and CFTC rulemakings could take up to 18 months, with main rules likely effective in late 2026 or 2027, though provisional CFTC registrations or targeted SEC guidance under Project Crypto may phase in sooner. The CLARITY Act would codify the regulatory test into law, surviving administration changes. That’s why the banking lobby is fighting so hard: statutory permanence for crypto rules is a once-in-a-decade event.
Beyond assigning authority, the CLARITY Act focuses heavily on structure. It creates tailored registration categories for exchanges, brokers, custodians, and other intermediaries. Instead of operating in legal limbo, firms would have a defined path to registration and ongoing compliance. Legal analyses describe this as a shift away from regulation by enforcement toward regulation by design.
What You Should Do Right Now
Crypto taxes in 2026 are defined by stronger third-party reporting, the rollout of Form 1099-DA, the start of cost basis reporting for 2026 activity, and a decisive move to wallet-level tracking. The taxable events themselves have not changed significantly, but the IRS now has better tools to compare what brokers report with what you file.
Previously, taxpayers could use universal accounting methods across all holdings. Now, each broker account must track cost basis separately, transfers between wallets don’t automatically transfer cost basis, and you must document cost basis for assets moved between platforms. This creates significant record-keeping challenges, especially for investors who have moved crypto between multiple exchanges and wallets over the years.
Companies active in digital assets should assess the impact of the proposed changes. Although the legislation is likely to evolve further, the potential for a completed bill this year is very real. To the extent the proposals would significantly change the future tax treatment of transactions, taxpayers should consider the impact on current investment decisions.
Conclusion: A Turning Point, Not a Finish Line
The CLARITY Act is not yet law, but its influence is already real. Even before becoming law, the CLARITY Act has already influenced how regulators, firms, and investors think about crypto market structure. The next few months will determine whether that influence turns into lasting legal clarity or remains a work in progress.
While key provisions are still under negotiation, the direction is increasingly clear: digital assets are being integrated into formal financial regulation, with defined rules replacing uncertainty. The United States is moving toward a coordinated regulatory system that defines responsibilities across federal agencies while maintaining space for innovation.
The era of crypto operating quietly outside the tax and regulatory system is ending. Whether the final law looks exactly like the current House bill or emerges from Senate negotiations as something more nuanced, one thing is certain: the rules are being written right now, and what gets locked into statute will shape the market for a generation. The most prepared investors won’t be the ones who react after the fact.