Blockfi Cryptocurrency Interest Payments and 1099-MISC

[yingleiz]

I did this, but it would not let me e-file my tax return. It was still complaining that 1099-misc needed to be linked with business income. 

Any one have a workaround, or should I mail it to IRS? 

[JamesG1]

1099-Misc box 3 should be reported on line 8z of Schedule 1 Additional Income and Adjustments to Income and line 8 of the Federal 1040 tax return.

Follow the steps below to report this income that is not reported as self-employment income.

• Select Federal from the left side menu.
• Click on Wages & Income.
• Scroll down to Less Common Income.  Click Show more.
• Click Start / Revisit to the right of Miscellaneous income….
• Click Start / Revisit to the right of Other reportable income.
• At the screen Other Taxable Income enter the description of the income.  

The income will be listed on line 8z of the Schedule 1 Additional Income and Adjustments to Income and line 8 of the Federal 1040 tax return.

You are able to track where the income is reported by viewing the entries at Tax Tools / Tools / View Tax Summary / Preview my 1040 or at Tax Tools / Print Center / Print, save or preview this year's return.

@yingleiz

[yingleiz]

That is exactly what I did, and it is indeed showing at the lines you mentioned. 

The problem is that it would not let me e-file. Turbotax is complaining that this is an error, and the message is "Form 1099-misc: A Link to Schedule C, Schedule F, Form 4835 or the other income statement must be entered. To associate this amount with the proper tax form double-click on the field provided or check the box for the form you want to link this amount to ".

I can't find how to associate it. Somehow turbo tax kept trying to link it to "Business income", which it is not. 

@JamesG1 

[notreadytohireanaccountant]

@JamesG1 - I believe I have performed the steps as outlined by you above. However, since cryptocurrency is treated as property, I am attempting to categorize this income as passive "rental" income to offset expenses associated with a rental property (I am reporting losses for the year from the rental property).  How can I categorize as such so the crypto income is offset by the rental property losses? And if it requires re-categorizing as "rental income", what address should I associate with the income?

[MarilynG1]

If your 1099-Misc entry is not linking properly to Schedule E, try deleting your 1099-Misc entry and enter your 1099-Misc as Rental Income.

[notreadytohireanaccountant]

What would you input as "Property Address" for rental assets that are not homes/buildings with physical addresses? 

[FangxiaL]

Try N/A.

@notreadytohireanac...

[RandomDude34345]

the right way to do it here https://ttlc.intuit.com/community/taxes/discussion/should-crypto-income-with-form-1099-misc-go-into-...

[Fred_Fandango]

I discovered a way to easily solve the problem. The online cloud based version of TurboTax is not as flexible at the desktop version. I was tearing my hair out! If you've started with the online version you can request TurboTax to give you access to the downloadable desktop software. I recommend doing this if you have a complex return. Using the desktop software you can access forms easily. This is not possible using the cloud version of TurboTax.  After you've entered the 1099-MISC, you can view the 1099-MISC Wks. Simply click "Other Income" in the information for Box 3, which puts an X in the Other Income box. Now check Schedule 1 and you'll see the income listed on line 8z Other income (Other income from box 3 of 1099-Misc). No SE tax should be generated. Problem solved!

[tracymtaylor]

The Problem with this solution is next year, because when filing next year they will ask about the year before.

[Fred_Fandango]

tracymtaylor: Can you please explain in detail what you mean? I am not understanding the problem.

[JohnB5677]

The interest you refer to sounds like staking.  Staking will generate passive income.  This is similar to getting interest in a checking account.

1. Staking will be taxed in the year that you receive it (Taxed as $USD)
2. Posted to Wages & Income
3. Less Common Income
4. Miscellaneous Income, 1099-A, 1099-C
5. Income from renting out personal property (not rental real estate or farm rentals)

[michturk2]

This is actually very different from staking. Without getting into the technical reasons why that is so, I mainly don’t want others to get confused, particularly since the tax laws are still being written with respect to staked cryptocurrencies.

This is strictly an interest-bearing account from a centralized entity (BlockFi) which issues tax forms annually. Staking a cryptocurrency on a decentralized blockchain would not result in tax forms being generated, ever, and the tax laws around staking are far fuzzier than those around interest-bearing accounts. 

While the two *may* be treated identically now, they are not identical forms of income, and may not be treated identically in different jurisdictions or different points in the future  (see the Tezos case below):

https://www.coindesk.com/layer2/2022/02/25/why-we-still-need-guidance-on-staking-rewards-taxation/?o...

[Fred_Fandango]

I fully agree with michturk2. I will re-emphasize that BlockFi and other centralized crypto financial institutions (either exchanges or bank-like entities) may provide interest on deposits, which is also referred to as "yield" or "rewards." Examples of such institutions are Celsius, Nexo, FTX.US, and Gemini. For interest amounts greater than $600 per year, these institutions issue a 1099-MISC to report the interest income they have paid during the year. The interest may be in US dollar stable coins, which is equivalent to US dollars, or they may pay interest in kind, e.g., bitcoin is issued for bitcoin deposits, or not in kind, e.g., interst is issued in a different currency. Thus, Celsius may pay interest on deposits of US dollar stable coins in CEL tokens instead of in US dollar stable coins.

The problem for TurboTax is that there is no place to enter the income reported on a 1099-MISC, when it refers to interest income. TurboTax assumes that a 1099-MISC relates to some type of miscellanous business income related to one business or another. Clearly, TurboTax needs to update its software. Until then, my work around is to access the 1099-MISC worksheet as noted in my previous comment. This can only be done in the desktop version of TurboTax. It can't be done on the browser based cloud version of the software.

[lorikrant]

Thank you for clarifying this very confusing and frustrating issue that BlockFi has caused a lot of people. By BlockFi filing these 1099-MISC docs with the IRS, it makes them think we have collected miscellaneous income from BlockFi by working for them as independent contractors in some capacity. Nothing could be further from the truth. When my husband and I purchased cryptocurriencies in 2021, we decided not to sell any of them yet, so no interest was actually realized by us in 2021. We also have Coinbase crypto accounts and purchased, but did not sell any, cryptos from them in 2021, and Coinbase never filed a 1099-MISC on our accounts. I think BlockFi needs to change this procedure, which has caused me alone several days of frustration when trying to rectify our tax returns. It sounds like many other people have experienced that very same issue.