Staking rewards and mined coins are ordinary income at fair market value when you gain control, then taxed again when you sell. Here's how both events work, plus mining as a business.
Here's the answer up front: crypto you earn through staking or mining is ordinary income the moment you receive it, valued at its fair market value on that day. It is not a capital gain, it is not tax-free until you sell, and it is not invisible to the IRS. You'll owe income tax on the reward in the year you gain control of it — even if you never convert a single coin to dollars.
Then, when you eventually sell those coins, a second taxable event happens. The fair market value you reported as income becomes your cost basis, and the difference between that basis and your sale price is a capital gain or loss. Two events, two tax treatments, one asset. That's the whole framework — and with brokers now issuing Form 1099-DA on crypto sales, the IRS can see the sale side of the ledger even when the income side was never reported.
This post walks through the staking rule, the mining rules (hobby vs. business, which matters a lot), and the recordkeeping that makes all of it survivable.
The IRS settled this question in Revenue Ruling 2023-14: if you stake cryptocurrency and receive rewards, you include the fair market value of those rewards in gross income in the year you gain dominion and control over them. Dominion and control means you can sell, exchange, or otherwise dispose of the tokens. If rewards are locked in a protocol and you genuinely cannot move them, the income clock generally hasn't started; the day they unlock and land where you can spend them, it has.
A concrete example. You stake ETH and receive 0.5 ETH in rewards on a day when ETH trades at $3,000. You have $1,500 of ordinary income for that year, taxed at your regular bracket rates. That's true whether the reward came from solo staking, a staking pool, or an exchange's staking program.
The same logic applies to most 'earned' crypto: interest-style rewards from lending programs, and airdrops once you can control the tokens. If crypto shows up in your wallet because of something you did or held, assume it's income at fair market value on receipt until you have a specific reason to think otherwise.
This is the part people miss, and it's the part that saves you money. When you report $1,500 of staking income, that $1,500 becomes your cost basis in the 0.5 ETH. Sell it later for $2,100 and you have a $600 capital gain — not a $2,100 gain. Hold it more than a year after receipt and that gain is long-term.
Taxpayers who never reported the income often can't document any basis, and a broker who doesn't know your basis may report the sale on Form 1099-DA with basis unknown. Then you're stuck reconstructing receipt dates and prices years later, or worse, paying tax on the full proceeds. Report the income in year one and the basis takes care of itself.
One more consequence of the two-event structure: the token can drop after you receive it, and you still owe income tax on the value at receipt. If your 0.5 ETH falls to $900 before you sell, you had $1,500 of ordinary income and now a $600 capital loss — and capital losses only offset ordinary income up to $3,000 a year. Selling losers deliberately is its own discipline; the rules are close cousins of the ones covered in our guide to what you can and can't deduct when crypto is lost or stolen.
Mined coins follow the same receipt rule — ordinary income at fair market value when you receive them. But mining adds a second question: are you mining as a hobby or as a business? The answer changes both what you owe and what you can deduct.
Why would anyone want business treatment? Deductions. A business miner deducts electricity, pool and hosting fees, repairs, internet, and the hardware itself. Mining rigs are equipment, and with 100% bonus depreciation now permanent for property acquired after January 19, 2025, a rig placed in service for a genuine mining business can generally be written off in full in year one — the details depend on your facts, so run the numbers before assuming. For a serious operation, those deductions routinely outweigh the self-employment tax cost. For a marginal one, they may not.
The classification isn't an election you pick for the better answer — it follows from how you actually operate. If you're near the line, this is exactly the kind of call worth making with a professional before you file, not after a notice arrives.
Every disposition of your staked or mined coins is a taxable event: selling for dollars, swapping for another token, or spending them on anything. Each one is a sale at fair market value, with gain or loss measured against the basis you established at receipt. People treat spending crypto as a non-event; the IRS treats it as a sale followed by a purchase. (Gifting is the notable exception — giving crypto away isn't a disposition, a rule with its own fine print that we cover in our guide to NFT, crypto gift, and crypto donation taxes.)
Frequency matters here. If you're auto-compounding staking rewards daily, you're creating hundreds of small income events, each with its own basis lot, and then hundreds of dispositions when you unwind. The tax result is fine; the bookkeeping is brutal without software. Which brings us to records.
Under Rev. Proc. 2024-28, wallet-by-wallet basis tracking became mandatory on January 1, 2025. You can no longer pool all your holdings across wallets and exchanges into one 'universal' basis account. Each wallet and each exchange account tracks its own lots, and when you sell from a wallet, the basis must come from lots actually held in that wallet.
For stakers and miners, that means recording, for every reward:
Meanwhile, brokers began reporting your sale proceeds on Form 1099-DA starting with 2025 sales, and basis reporting phases in for covered assets acquired at the same broker on or after January 1, 2026. But no broker knows what happened in your self-custody wallet or your validator. The income side of staking and mining is yours to report, and the IRS increasingly has the sale side to cross-check it against.
Staking and mining rewards are ordinary income at fair market value when you gain control, that value becomes your basis, and every later sale or swap is a second taxable event measured against it. Get the receipt-date records right and the rest is arithmetic; get them wrong and you're reconstructing years of history under deadline pressure. Taxagon's CPAs and EAs untangle staking and mining records for individual crypto filers every season — if you'd rather not navigate it alone, reach out.
This article is general information, not tax advice for your specific situation. Tax law changes; figures are for the years stated.
Talk it through with a licensed US tax professional — we'll tell you honestly whether it applies to your situation.
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