How is cryptocurrency mining taxed? A guide for 2026

Key takeaways

• When you receive a mining reward, it’s considered taxable ordinary income based on the cryptocurrency’s fair market value.
• When you sell, trade, or spend crypto you mined, you’ll realize a capital gain or loss based on the difference between your cost basis and the amount you receive at disposition.
• Whether the IRS treats your mining activity as a hobby or a business affects how you report income and which deductions you can claim.
• Mining income is not subject to tax withholding, so many miners need to plan for quarterly estimated tax payments.
• Accurate recordkeeping is essential for compliance and audit protection.

Crypto mining is a way to earn rewards for helping the Web3 community. Those rewards are considered taxable income in the United States, so the IRS requires you to recognize that income at the time of receipt. How you report that income, and whether you can deduct related costs, depends on if your mining is a casual hobby or a business activity.

In this guide, we’ll explain how cryptocurrency mining is taxed, how the IRS treats sales and swaps of reward tokens, and what tax forms you need to use to stay compliant.

What’s cryptocurrency mining?

Cryptocurrency mining is the process of verifying and recording transactions on a peer-to-peer (P2P) blockchain using proof-of-work (PoW). While Bitcoin is the largest and most competitive PoW network, many others use this verification model.

Miners in PoW networks use computing power to solve cryptographic puzzles and confirm new blocks of transactions. The first miner to find the solution adds that block to the ledger and receives a predetermined amount of cryptocurrency as a block reward.

Mining doesn’t require permission from any central authority, so anyone with internet access and the necessary hardware can participate. That said, modern mining is resource-intensive, especially on large networks like Bitcoin, which creates a high barrier to entry for crypto beginners.

How is crypto mining taxed in the US?

The IRS taxes cryptocurrency mining at two points: when you receive mining rewards, and when you dispose of them.

Ordinary income at receipt

The IRS doesn’t distinguish between cash payments and crypto rewards. If you receive compensation for services, it’s income. So, when you receive cryptocurrency from mining, the IRS treats it as ordinary income. This rule comes from IRS Notice 2014-21 and digital asset guidance that followed.

You must determine how much the crypto is worth – its fair market value (FMV) – in USD at the time you gain dominion and control over the rewards. This amount becomes your cost basis for calculating any gain or loss on a future disposition.

Capital gain or loss at disposal

When you sell, trade, or spend mined cryptocurrency, the disposition triggers a separate tax event: capital gain or loss.

At this point, compare the sale price to your original cost basis. If the value increased while you held the coin, you’ll owe capital gains tax. If the value decreased, you may be able to claim a capital loss to offset capital gains and any excess can offset up to $3,000 of ordinary income per year.

The cost basis is separate for each transaction – you can’t aggregate identical assets like Bitcoin (BTC) across multiple wallets or exchanges when you calculate gains or losses. Crypto miners report the basis and holding period of specific coins sold from each source.

The default cost basis method is FIFO (first in, first out), meaning your oldest units are treated as sold first. But if you’d rather use an alternate model, you must identify the specific units at or before the time of each disposition and maintain adequate records. Accurate timestamps and FMV at receipt are essential for this approach. Without precise records, applying specific identification can lead to reporting errors.

Is mining income taxed twice?

No, the IRS doesn’t tax the same dollar twice. You report income when you receive the reward, and if you later dispose of it, you only pay capital gains tax on any increase in value beyond your cost basis.

For example, if you mine one BTC worth $75,000, you report $75,000 as ordinary income. If you later sell that BTC for $78,000, you only pay capital gains tax on the $3,000 gain. The original $75,000 is your cost basis, and it’s not taxed again.

Mining as a hobby vs. mining as a business

You don’t need to register as an LLC to turn crypto mining into a business operation – and your mining might be reclassified by the IRS regardless of your personal preference. Your hobby versus business mining status has an impact on your tax outcomes.

Here are the differences between the two main kinds of miners.

Hobby mining

Most miners are considered hobby miners. If you mine occasionally and don’t operate with the intent of earning a profit or making a living from that mining, you’re a hobbyist.

Hobbyists need to report the FMV of all mining rewards as ordinary income in the tax year they were received. This income is reported on Schedule 1, Line 8v, under “Digital assets received as ordinary income not reported elsewhere.”

Hobby miners can’t deduct mining-related expenses from their taxes. The Tax Cuts and Jobs Act of 2017 suspended miscellaneous itemized deductions, which previously allowed hobby expense write-offs. The One Big Beautiful Bill Act of 2025 made this suspension permanent.

Not being able to write off electricity, mining hardware, and maintenance and repair costs can create a significant tax burden. You’ll owe tax on the mined cryptocurrency’s full FMV, even if your operating costs exceed your rewards – which often happens, especially for new miners.

Business mining

If you mine regularly, continuously, and with a clear intent to make a profit, the IRS may treat your activity as a business. You’ll report business income on Schedule C for sole proprietorships (or the appropriate business return for partnerships and corporations, such as Forms 1065, 1120-S, or 1120, if you’ve formally established a business).

Unlike hobbyists, business miners can deduct ordinary and necessary expenses related to their mining operations. If you operate as a sole proprietor, your mining income is also subject to self-employment taxes, which cover Social Security and Medicare.

What deductions can mining businesses claim?

Operating as a business means you can treat crypto mining like any other business operation. You can deduct the following ordinary and necessary expenses from your total income to reduce your taxable profit:

• Electricity and internet: The power and data you use to run rigs and connect to the pool.
• Hardware depreciation: Computer parts like ASIC rigs and GPUs depreciated over their useful life.
• Repairs and maintenance: Parts like replacement fans, power supplies, and thermal paste necessary to keep your system running.
• Rent or home office: A portion of your rent or mortgage if you have a dedicated area used regularly and exclusively for crypto mining.
• Cooling and infrastructure: Support pieces like new industrial fans, HVAC upgrades, and specialized shelving.

You can also use Section 179 to deduct the full cost of hardware the year you buy them rather than depreciating it over multiple years.

Do crypto miners need to pay quarterly estimated taxes?

Miners often need to pay taxes throughout the year based on the IRS estimated tax system. Mining pools don’t withhold taxes from your rewards, so the IRS requires quarterly estimated payments if you expect to owe at least $1,000 in tax for the year.

However, crypto’s price volatility makes these quarterly estimates challenging. If you mine when prices are high, but the market crashes before you sell, you might still owe taxes based on the higher FMV at the time of receipt. This volatility is why some miners sell a portion of their rewards immediately – to lock in the cash they need for estimated tax payments.

What happens if you don’t report mining rewards?

No matter how much you made or what you plan to do with it, you are required to report your mining rewards on your tax return. The IRS treats unreported mining income as unreported taxable income. So, if you don’t report your mining rewards, the IRS may assess back taxes, penalties, and interest, depending on the situation.

Blockchain ledgers are public, and the IRS has analytics tools to link on-chain transactions to taxpayers. The IRS ability to trace digital asset activity is growing – so accurate reporting is critical to stay compliant.

Keeping a record of every reward’s incoming date, time, and FMV will help you stay in line and avoid the risk of penalties.

What’s the 30% mining tax?

In 2023, federal budget proposals included a Digital Asset Mining Energy (DAME) tax, a 30% excise tax on cryptocurrency miners’ electricity use. The DAME tax was proposed as a way to address concerns about excessive energy consumption associated with proof-of-work mining. Officially, the proposal focused on large-scale mining operations, but its supporters never defined size or energy use thresholds.

The proposed policy didn’t pass in 2023, so a 30% tax on electricity use for crypto mining wasn’t established at that time. However, regulators are still looking into energy consumption related to digital assets, so it’s a good idea to monitor future budget proposals for other potential new crypto taxes.

Is it possible to avoid taxes on crypto mining?

You can’t legally avoid paying taxes on crypto mining, but there are strategies to reduce your tax liability. Here are a few ways to lower your tax burden for the year:

• Hold mined coins for more than one year: You’ll owe capital gains tax when you dispose of your mined reward coins if they increase in price. Holding that crypto for more than one year means your gains may qualify for long-term capital gains rates – which are generally lower than short-term tax rates.
• Use tax-loss harvesting on disposals: If the market price of your mined crypto drops below its FMV at receipt, you can sell to realize a capital loss. Capital losses first offset capital gains, and any excess can offset up to $3,000 of ordinary income per year.
• Sell strategically to cover tax obligations: There’s no tax withholding on mining income, so you’ll have to make estimated tax payments quarterly if you expect to owe at least $1,000 for the year. Selling part of your rewards during the year can generate that cash while reducing your risk of estimated tax penalties.
• Apply the correct classification: Your mining business classification affects whether deductions, depreciation, and self-employment tax apply.
• Reinvest in equipment when operating as a business: A mining business can deduct equipment costs when parts depreciate or by expensing equipment and utilities. These deductions offset taxable business income and can improve cash flow.
• Use professional guidance: A tax professional or crypto tax advisor can help you determine whether your mining activity qualifies as a business, properly plan for tax obligations, and maximize your deductions.

Mined crypto taxes made easy with CoinTracker

Crypto mining creates tax obligations the moment you receive the rewards. Those obligations stack when you sell, trade, or spend your mined assets, and how you handle every step directly affects your tax bill and compliance risk. Clear records and correct reporting matter, especially as enforcement and reporting standards continue to tighten.

Mining taxes don’t have to be overwhelming, but they do require accurate and consistent records to file correctly. The right crypto tax software can help you track income, calculate cost basis, and prepare reports across wallets and exchanges.

Worried about reporting your crypto taxes? CoinTracker makes it simple. Join over three million users who trust us for hassle-free tax reporting. Start for free today.

Disclaimer: This post is informational only and is not intended as tax advice. For tax advice, please consult a tax professional.

FAQ

Is crypto mining income taxable when I receive it or when I sell it?

The IRS treats mined crypto as taxable income the moment you gain control over it. You’ll have to report its FMV in USD on that date. Selling, trading, or spending mined crypto later creates a separate tax event. At that point, you’ll calculate a capital gain or loss by comparing the disposal price to your cost basis – the value you reported as income.

Will I receive a tax form for my mining?

Starting in tax year 2025, you’ll receive the new Form 1099-DA if you use a custodial broker or centralized exchange (CEX) to sell or exchange your mined assets. However, many decentralized mining pools won’t issue any forms. You are still required to report all mining income regardless of whether you receive a tax form. Not receiving a 1099-DA form (or any other kind of tax form) isn’t an acceptable defense to the IRS for not reporting your taxes.

Do I have to pay taxes on Bitcoin mining?

Bitcoin mining rewards are taxable in the U.S. The IRS doesn’t treat BTC differently from any other cryptocurrency. When you mine BTC, you have to report the reward’s FMV as ordinary income on the day you receive it. Any later disposal of that BTC may result in a capital gain or loss, depending on if the price of BTC is higher or lower than when you received it.

Should I report my mining activity as a business or a hobby?

It depends on a few factors. The IRS looks at things like how often you mine, scale, and profit motive to determine if your mining activity is a business or hobby. Occasional or experimental mining is more likely to be treated as a hobby and taxed accordingly.

Business miners can deduct ordinary and necessary expenses and may owe self-employment tax. Hobby miners are not subject to self-employment tax but can’t deduct expenses. If your classification isn’t clear, talk to a CPA or other tax professional.

Do I have to pay self-employment tax on crypto mining activity?

If your mining activity qualifies as a business and you operate as a sole proprietor or similar pass-through entity, you’ll owe self-employment tax. In that case, mining income is subject to both income and self-employment taxes, which cover Social Security and Medicare.

Do I pay taxes on the pool fees deducted from my rewards?

It depends on your tax classification. If you’re a business miner, report the full reward as income and deduct the pool fees as a business expense. If you’re a hobby miner, you’ll generally report the net amount you received in your wallet, but you can’t deduct the pool fees.