What Are the Rules for How Crypto Mining Is Taxed?
Learn how crypto mining creates distinct tax events. Understand how to value mined assets as income and how to report gains or losses when you sell or use them.
Cryptocurrency mining involves using computers to verify transactions on a blockchain network, earning newly created coins as a reward. The Internal Revenue Service (IRS) views these rewards as a taxable event. From the moment new coins are successfully mined and received into your digital wallet, they constitute income, triggering a tax liability that must be properly calculated and reported.
Taxation at the Moment of Mining
The U.S. tax system treats mined cryptocurrency as ordinary income, taxed at your standard rate, which for 2025 ranges from 10% to 37% depending on your filing status. This income must be reported for the period you gain control of the coins, and failure to do so can lead to penalties and back taxes. The value you report also establishes the cost basis for the newly acquired asset.
To determine your income, you must calculate the fair market value (FMV) of the cryptocurrency in U.S. dollars on the date and time it was received. You can use the quoted price on a reputable cryptocurrency exchange for this valuation. It is important to keep consistent records of the date, time, quantity, and the U.S. dollar value for each mining reward.
Determining Your Miner Status Hobbyist or Business
A key question is whether your activity is a business or a hobby, as the tax implications differ. The IRS uses several factors to make this determination, focusing on your intent and whether you operate in a businesslike manner, the effort you invest, and if you have a realistic expectation of profit.
If your mining is a business, you are self-employed. Your net profit is subject to income and self-employment taxes, which cover Social Security and Medicare. Business income and expenses are reported on Schedule C, which allows you to deduct costs to lower your taxable income.
If your mining is a hobby, you must report the full FMV of your crypto as “Other Income” on Schedule 1 (Form 1040). You cannot deduct mining costs, and while this income is not subject to self-employment tax, the inability to deduct expenses often results in a higher tax bill.
If you depend on mining income and have a history of profitability, the IRS is more likely to view your activity as a business. Maintaining detailed financial records can help substantiate this status.
Allowable Deductions for Mining as a Business
Miners operating as a business can deduct a range of operating costs to reduce taxable income. To claim these deductions, you must substantiate all expenses with receipts and invoices. Common deductible expenses include:
- The portion of your electricity bill used for mining
- Internet service fees
- Rent paid for a dedicated mining facility
- Repairs to mining equipment
The cost of mining equipment itself is depreciated, meaning you deduct a portion of its cost over several years to reflect its useful life.
Business miners can accelerate these deductions. The Section 179 deduction may allow you to deduct the full purchase price of qualifying equipment in the year it was placed in service. Bonus depreciation allows for an immediate deduction of a percentage of the cost, which for property placed in service in 2025 is 40%.
For shared expenses like a home office, you must use a reasonable method to allocate the portion used for your business. For example, you can calculate the square footage of a dedicated mining room as a percentage of your home’s total square footage to determine the deductible portion of utility and housing costs.
Tax Obligations When Selling or Using Mined Crypto
A second taxable event occurs when you dispose of your mined cryptocurrency, which includes selling it for cash, exchanging it for another cryptocurrency, or using it for goods and services. This transaction triggers a capital gain or loss that is reported separately from your mining income.
The capital gain or loss is calculated by taking the sale price and subtracting your cost basis. For example, if you mined one coin and reported $1,000 of income, establishing a $1,000 cost basis, and later sold that coin for $1,500, you would have a $500 capital gain.
The tax rate applied to this gain depends on how long you held the cryptocurrency. If you held it for one year or less, the profit is a short-term capital gain taxed at your ordinary income rates. If you held the asset for more than one year, it qualifies as a long-term capital gain, subject to lower tax rates of 0%, 15%, or 20%, depending on your taxable income.
Using crypto to make a purchase is a taxable disposition. If you use a mined coin worth $2,000 (with a $1,000 cost basis) to buy a product, you have realized a $1,000 capital gain just as if you had sold the coin for cash.
Reporting Mining Activity to the IRS
Properly reporting your mining activities requires using specific IRS forms that correspond to your miner status and transaction type.
Miners operating as a business will use Schedule C (Form 1040), Profit or Loss from Business. On this form, you report the gross income from mining and subtract all allowable business expenses to arrive at a net profit or loss. This net profit is then used to calculate self-employment tax on Schedule SE.
For individuals whose mining is a hobby, the gross income is reported on Schedule 1 (Form 1040) as “Other income.” No expenses can be deducted, so the full value of the mined crypto is added to your total income.
Regardless of your status, all sales and exchanges of mined crypto must be reported on Form 8949, Sales and Other Dispositions of Capital Assets. Each transaction is listed separately, showing the date acquired, date sold, sale price, and cost basis. The totals from Form 8949 are then summarized on Schedule D, Capital Gains and Losses.