Crypto Staking and Mining Taxes: A Practical Guide

Ordinary income on receipt

IRS Revenue Ruling 2023-14 confirms: staking rewards are ordinary income at fair market value on the date you have dominion and control — typically the moment the reward lands in a wallet you control.

The same logic applies to mining rewards, lending interest, and most DeFi yield.

Cost basis = the income you reported

The FMV you recognized as income becomes your cost basis for that coin. When you later sell or swap it, your gain/loss is sale price − that basis.

Example: stake ETH and receive 0.1 ETH worth $200 on receipt day. Ordinary income: $200. Basis: $200. Later sell for $350: $150 long-term capital gain (if held >1 year).

Hobby vs business mining

If mining is a trade or business:

• Reported on Schedule C
• Subject to self-employment tax (15.3%)
• Can deduct electricity, equipment depreciation, hosting, internet

Hobby mining: reported as other income on Schedule 1; deductions extremely limited post-TCJA.

Record-keeping that actually works

• Date and time of every reward
• Coin/quantity received
• FMV in USD at receipt
• Source (which validator, pool, protocol)
• Wallet address that received it

Crypto tax software (Koinly, CoinTracker, TokenTax) automates most of this from wallet/exchange APIs.

Common mistakes

• Treating staking rewards as capital gain (it's ordinary income)
• Forgetting to set basis = income, leading to double tax on sale
• Missing rewards from auto-compounding protocols
• Ignoring small airdrops that pile up to material income

Loss scenarios

If you received $1,000 in staking income and the coin's value crashes to $100 before you sell, you have $1,000 of ordinary income and a $900 capital loss on disposal. Capital loss only offsets capital gains plus $3K of ordinary income per year — so the timing mismatch can sting.