US Crypto Mining Tax Guide 2025

IRS Treatment of Mining

The IRS treats crypto mining as ordinary income:

• Mining rewards = taxable income when received
• Income value = fair market value (FMV) in USD
• Classified as business income or hobby income
• Cost basis = income value (for future capital gains)

Business vs Hobby Mining

Business Mining (Schedule C)

If you mine with profit motive and regularity:

• Report on Schedule C (business income)
• Subject to 15.3% self-employment tax
• Can deduct business expenses (electricity, equipment, depreciation)
• Can deduct losses against other income
• May need quarterly estimated tax payments

Hobby Mining (Schedule 1)

If you mine casually without profit motive:

• Report on Schedule 1, line 8z ("Other Income")
• No self-employment tax
• Cannot deduct expenses (TCJA 2017 eliminated hobby deductions through 2025)
• Cannot deduct losses

How IRS Determines Business vs Hobby

IRS considers these factors:

• Profit motive: Do you intend to make a profit?
• Time and effort: Substantial time spent mining?
• Expertise: Do you have knowledge/experience?
• Business operations: Separate bank account, records, business plan?
• History of profits: Profitable in 3 of last 5 years = presumed business

Example: Business vs Hobby

Business:

• Invested $50,000 in ASIC miners
• Dedicated space, business electricity account
• Mining full-time with goal of profit
• Detailed records and business plan

Hobby:

• Old gaming PC mining when not in use
• Casual interest, no profit expectation
• No business records or separate accounts

Income Calculation

When is Mining Income Recognized?

When you receive coins (gain dominion and control):

• Solo mining: When you mine a block
• Pool mining: When pool credits your account (even if not withdrawn)

Fair Market Value

FMV = USD value at time of receipt:

• Use exchange rate from major exchange (Coinbase, Kraken, etc.)
• Be consistent with valuation method
• Document exchange rate used

Example: Income Calculation

• March 15, 2024, 10:00 AM: Receive 0.1 BTC from mining pool
• BTC price at time: $65,000
• Mining income: 0.1 × $65,000 = $6,500
• Cost basis for future sale: $6,500

Self-Employment Tax (Business Miners Only)

Rate

15.3% of net earnings:

• 12.4% Social Security (on first $168,600 in 2024)
• 2.9% Medicare (no limit)
• 0.9% additional Medicare (on income >$200,000 single / $250,000 married)

Example: Self-Employment Tax

• Mining income: $50,000
• Business expenses: $20,000
• Net earnings: $30,000
• Self-employment tax: $30,000 × 15.3% = $4,590
• Plus: Income tax on $30,000 at marginal rate

Deductible Expenses (Business Miners)

Common Deductions

1. Electricity: Power consumption costs
2. Equipment: Mining hardware (depreciated, see below)
3. Rent: If renting dedicated mining space
4. Cooling: HVAC, fans, ventilation
5. Internet: Portion used for mining
6. Repairs and maintenance: Equipment repairs
7. Pool fees: Mining pool charges
8. Software: Mining software subscriptions
9. Home office: If qualifying (see below)

Equipment Depreciation

Mining equipment = depreciable business property:

• 5-year property (MACRS depreciation)
• Section 179 expensing: Up to $1,220,000 immediate deduction (2024)
• Bonus depreciation: 60% first year (phasing out, was 100% in 2022)

Example: Section 179 Expensing

• Buy 10 ASIC miners for $30,000
• Elect Section 179: Deduct entire $30,000 in year 1
• Alternative: Depreciate over 5 years using MACRS

Home Office Deduction

If mining from home:

• Must have dedicated space used exclusively for mining
• Deduct portion of: rent/mortgage interest, utilities, insurance, repairs
• Simplified method: $5/sq ft (max 300 sq ft = $1,500)

Selling Mined Crypto

Capital Gains Tax

When you sell mined coins:

• Taxable capital gain/loss = proceeds - cost basis
• Cost basis = FMV when mined (income value)
• Report on Form 8949 and Schedule D
• Short-term (<1 year) or long-term (>1 year) rates apply

Example: Selling Mined Coins

• March 2024: Mine 0.1 BTC (income: $6,500)
• December 2024: Sell 0.1 BTC for $9,000
• Capital gain: $9,000 - $6,500 = $2,500
• Held <1 year: Short-term gain, taxed at ordinary rates

Full Tax Burden Example

• When mined (March): $6,500 ordinary income + self-employment tax
• When sold (December): $2,500 short-term capital gain
• Total taxable: $9,000 (but $6,500 already taxed)

Tax Rates

Ordinary Income (Mining Income)

Plus 15.3% self-employment tax for business miners

Capital Gains (Selling Mined Coins)

• Short-term (<1 year): Ordinary income rates (10-37%)
• Long-term (>1 year): 0%, 15%, or 20% (based on income)

How to Report

Business Miners

1. Schedule C: Mining income and business expenses
2. Schedule SE: Self-employment tax calculation
3. Form 8949 & Schedule D: Capital gains from selling mined coins
4. Form 4562: Depreciation (if claiming)

Hobby Miners

1. Schedule 1, line 8z: Mining income ("Cryptocurrency mining")
2. Form 8949 & Schedule D: Capital gains from selling

Form 1040 Question

Check YES: "At any time during 2024, did you receive, sell, exchange, or otherwise dispose of any financial interest in any virtual currency?"

Quarterly Estimated Taxes

When Required

If you expect to owe $1,000+ in tax:

• Pay quarterly estimated taxes
• Due: April 15, June 15, Sept 15, Jan 15
• Use Form 1040-ES
• Avoid underpayment penalties

Safe Harbor Rule

• Pay 90% of current year tax, OR
• Pay 100% of prior year tax (110% if income >$150,000)

Record Keeping

Keep records indefinitely (IRS recommends 6+ years):

• Mining pool statements (dates, amounts, USD values)
• Wallet addresses and transaction IDs
• Equipment purchase receipts
• Electricity bills
• Repair and maintenance receipts
• Pool fees and software subscriptions
• Daily/monthly mining logs

Tools for Mining Tax

• Koinly - Mining income tracking, IRS forms
• TokenTax - Mining categorization, Schedule C support
• ZenLedger - Mining pool integrations

Common Mistakes

1. Not reporting mining income: IRS considers it taxable when received
2. Claiming business deductions for hobby: Only businesses can deduct expenses
3. Not paying quarterly estimated taxes: Results in underpayment penalties
4. Forgetting self-employment tax: 15.3% on top of income tax
5. Using cost basis of $0: Cost basis = FMV when mined
6. Not tracking electricity costs: Major deductible expense for businesses
7. Missing Section 179 deduction: Can immediately expense equipment

FAQs

Is crypto mining taxed as income in the US?

Yes. Mining rewards are ordinary income at fair market value when received.

Do I pay tax when I mine or when I sell?

Both. You pay ordinary income tax when mined, then capital gains tax when sold (on any appreciation).

Is mining a business or hobby?

Depends on your facts. Profit motive, time spent, expertise, and business operations determine classification. Most serious miners qualify as businesses.

Can I deduct mining expenses?

Yes, if business. Electricity, equipment, rent, and other expenses are deductible. No, if hobby (hobby deductions suspended through 2025).

Do I pay self-employment tax on mining?

Yes, if business (15.3%). No, if hobby.

Can I use Section 179 to deduct mining equipment?

Yes, business miners can use Section 179 to immediately expense up to $1,220,000 in equipment (2024 limit).

What if I mine at a loss?

Business: Can deduct losses against other income. Hobby: Cannot deduct losses.

Do I need to report if I haven't sold my mined coins?

Yes. Mining income is taxable when received, even if you don't sell.