Tax treatment of staking rewards

[DavidW7]

I am considering staking some crypto. Can you help me understand the tax treatment regarding the new coins awarded as a result of staking crypto? Are those new coins taxable income at the point they are awarded, or are they not taxable until the newly awarded coins are actually spent? Thank you.

[Andrew_W]

Hi @DavidW7,

Staking crypto is treated as taxable income, based on the fair market value of the crypto at the time it is received. This is analogous to earning interest from a savings account.

If you hold the staking crypto received for investment, you may also have a capital gain or loss when you later sell or exchange.

This is a good resource for crypto taxes: https://turbotax.intuit.com/tax-tips/investments-and-taxes/your-cryptocurrency-tax-guide/L4k3xiFjB  

[HankR1]

Hi,

The IRS released guidance on staking rewards this year. In short, staking rewards are taxable as income both when you receive (meaning having control over) it as well as when you dispose of it. Disposing could produce a more favorable tax situation as it's considered a capital gain. 

Other experts have posted regarding this topic too:

chrome-extension://efaidnbmnnnibpcajpcglclefindmkaj/https://www.irs.gov/pub/irs-utl/rev-ruling-2023-14.pdf

https://ttlc.intuit.com/community/taxes/discussion/where-do-i-report-crypto-staking-rewards/00/25295....

[LRPASS]

Thanks, HankR1, for the answer. I checked the link you provided, and it says this: "You treat staking income the same as you do mining income: counted as fair market value at the time you earn the income and subject to income and possibly self-employment taxes."

I'm a little confused on how to report the specifics on staking. Let's make-up a crytpo called ABC. I have 50 ABC's. I stake it starting 3/2023. By 12/31/23 I have 55 ABC's. I get that the 5 ABC's is "interest", but how do I calculate the US dollar amount? Is it 5 X the value of ABC on 12/31/23? What value do I use?

And this would be taxed at ordinary income, correct? TY!

[Andrew_W]

Hi @LRPASS,

Staking rewards are considered taxable income at the fair market value of the asset in USD on the date they are received.

As an example, if the staking reward is received on 4/1/2023, the fair market value of the reward as of that date, in USD, is the income amount. Staking rewards are treated as ordinary income.

[LRPASS]

Thanks Andrew!

But what if staking occurs every epoch? That is, another reward every 2 days? That would be hard (impossible?) to calculate/list a separate one for every reward.

[Andrew_W]

You're welcome!

Each reward does need to be tracked, as each is seen as a separate asset/transaction, and likely will have different fair market values. There are different software platforms that can assist in tracking this information, including the TurboTax Investor Center. 

[LRPASS]

Thank you!

Does that software (I see it is free) integrate with Turbo Tax? Is there a way to import the info into TT?

Also, if I sync that with, for example, my digital wallet, can it automatically track each staking reward per the above discussion?

[Andrew_W]

Yes, it will import into TurboTax. If your digital wallet is one of the ones that are supported, it will track transactions as they occur, including staking rewards. You'll be able to view specifics and see each transaction under the Transactions View within the Investor Center.

[LRPASS]

I went to that link - it says it's free, but then a tab under "File your crypto taxes" has prices listed. Are those prices separate from the regular Turbo Tax product, or are those the regular TT product. In other words, are there separate charges for the regular TT AND the TT Investor center for Crypto, or just the charge for TT (and the crypto tracking part is included in the price/free)?

[Andrew_W]

The prices under "File your crypto taxes" are for the regular TurboTax product, not for the Investor Center. TurboTax Investor Center is free to use.