Crypto mining valuation

[lulukern123]

When you mine the crypto how to determine the cost basis for it? If you mine on a daily basis do you need to use the market value on each particular day of the earned cyrpto and report it as a taxable income? I assume this is not applicable is the mining is done on a test platform but once it is moved to the production but the crypto is  not eligible for the training of the exchange, is it still considered to be a taxable income? IF so what would the evaluation basis could be used if the crypto is not traded at the exchanges yet but you can use it to buy services/goods? Thanks!

[marctu]

@lulukern123 thank you for another question.  When you earn cryptocurrency from mining, it counts as regular taxable income. You owe tax on the entire value of the crypto on the day you receive it, at your marginal income tax rate.

There would be a subsequent taxable event if the cryptocurrency that you paid tax on is then used to purchase a service/good.  This could be a short-term capital gain or loss or a long-term capital gain or loss.  The basis would be the value on the day you received it. 

Be well and safe.

All the best,

Marc T.

TurboTax Live Select Time Tax Expert

26 Plus Years of Experience Helping Clients

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[lulukern123]

I think the key here is to determine the date when I received it. If I cannot sale it because it is stacked/locked for another 3 years, or not being exchanged at the currency exchanges then probably I did not receive it. What is the definition of the received date? Is it the date when I can benefit from it?

[Loretta P]

Hello @lulukern123,  Great question.  The IRS considers cryptocurrency received when you can transfer, sell, exchange or otherwise dispose of it, which is generally the date and time the airdrop is recorded on the distributed ledger. 

Q25. How do I determine my basis in cryptocurrency I received following a hard fork?

A25. If you receive cryptocurrency from an airdrop following a hard fork, your basis in that cryptocurrency is equal to the amount you included in income on your Federal income tax return.  The amount included in income is the fair market value of the cryptocurrency when you received it.  You have received the cryptocurrency when you can transfer, sell, exchange, or otherwise dispose of it, which is generally the date and time the airdrop is recorded on the distributed ledger.  See Rev. Rul. 2019-24.  For more information on basis, see Publication 551, Basis of Assets.

IRS Provides Further Guidance on the Taxation of Virtual Currency 

Your Crypto Tax Guide