Staking allows individuals to earn crypto rewards on certain crypto they own without selling them. Their staked crypto helps validate transactions and support blockchain security, and in return, they earn rewards.
Types of staking:
- Liquid staking: Liquid staking allows individuals to access liquidity while their assets are staked. By staking through a service or protocol, they receive a tradable token representing their staked assets, which continue earning rewards.
- Illiquid staking: Illiquid staking locks cryptocurrency to earn rewards, making the tokens inaccessible for trading or use until they are unstaked or unlocked.
The tax treatment of staking can be complex, and the implications differ between these forms. Stay informed and consult a tax professional if needed. Learn more about staking reward transactions.
Using the Stake/Unstake category
You can adjust the category of a transaction to a stake deposit or withdrawal, as needed:
Stake: You deposited assets into a staking contract and received a token return.
- For liquid staking: You can apply the Stake category to Trade or Mint transactions.
- For illiquid staking: You can apply the Stake category to Send transactions.
Unstake: You redeemed your staked assets by returning a staking token.
- For liquid staking: You can apply the Unstake category to Trade transactions.
- For illiquid staking: You can apply the Unstake category to Receive transactions.
Tax treatment for liquid staking
By default, transactions categorized as Stake/Unstake for liquid staking are treated as taxable, like any other trade.
You can update your CoinTracker settings to treat staking and unstaking transactions as non-taxable. When treated as non-taxable:
- The cost basis (plus the fee) transfers from the outgoing token to the incoming token and remains constant (adjusted for fees) when assets are staked or unstaked.
- For Single-In-Single-Out (SISO) transactions, the acquisition date of the outgoing token transfers to the incoming token.
- For Multiple-In-Multiple-Out (MIMO) transactions, the staking transaction date becomes the acquisition date for the incoming token.
You can update your CoinTracker settings to treat liquid staking transactions as non-taxable. To change the default settings:
- Navigate to Settings.
- Click the Tax tab.
- Click Treat liquid staking as non-taxable, and toggle on.
- Select a start date.
- Select an end date (optional), then click Next.
- Review your selection and click Confirm & save to complete this process.
To turn off this setting, follow the above steps and toggle the feature off.
Additional considerations
- Only stake transactions made after the effective date will be treated as non-taxable.
- You can manually mark a transaction as taxable if needed. This flexibility helps to address edge cases and unforeseen circumstances.
How cost basis is affected by non-taxable tax treatment
As a reminder, changing the tax treatment of staking transactions to non-taxable keeps the cost basis constant (adjusted for fees) when assets are staked or unstaked.
Example:
For example, if your effective date is January 1, 2022, for treating Stake as non-taxable, what happens if you tag a 2020 transaction as Stake and then Unstake the asset in 2022?
- Effective date: January 1, 2022, with Stake set as non-taxable.
- In 2020, a taxable disposal applies to maintain the prior tax return:
- Cost basis: $150
- Sale: $394.89 (gain: $244.89)
- New cost basis for the staked token (LST): $394.89
- In 2022, when unstaking, the LST is valued at $2,786.48, but the cost basis remains $394.89 because the non-taxable treatment begins as of January 1, 2022.
How the acquisition date is determined for liquid staking
Single-In-Single-Out transaction example
- You bought ETH on January 1, 2022.
- On January 10, 2022, you staked that ETH and received stETH as a liquid staking token.
- The acquisition date for the ETH on your 8949 tax form remains January 1, 2022 (the original purchase date), not the staking date.
- Later, on February 1, 2022, you unstaked 1 stETH and received 1 ETH back, then sold it the same day.
- The acquisition date for the sold ETH is still January 1, 2022 (the original purchase date), not the unstaking date (February 1, 2022).
Here’s how that would appear on the 8949 tax form:
Multiple-In-Multiple-Out transaction example
- You bought 1 ETH and 1 cbETH on January 1, 2022.
- You staked both on January 10, 2022, and received stETH as a liquid staking token.
- You later unstaked both and received 2 ETH on February 1, 2022, and sold it the same day.
- The acquisition date for the 2 ETH remains January 10, 2022, not February 1, 2022.
Tax Treatment for illiquid staking
Illiquid staking transactions tagged as Stake/Unstake are treated as non-taxable by default. This means:
- Staking deposits (Stake) are treated as outgoing transactions and marked as staked lots for the respective wallet, making them unavailable for sales, trades, or transfers.
- Staking withdrawals (Unstake) are treated as incoming transactions that reduce the staked lots, making them available for sell, trade, or transfer.
- Cost basis and acquisition date information transfer as assets move between available and staked lots, retaining the original purchase details.
Important: CoinTracker applies the cost basis method (HIFO, FIFO, LIFO) set in your account to staking and unstaking transactions. This may lead to different outcomes than expected, as cost basis is determined based on the overall portfolio, not individual staking services.
For example: If you use FIFO (First In, First Out) and stake ETH on three different dates, CoinTracker will apply the FIFO method when unstaking, meaning the first staked asset will be the first one unstaked.
How the acquisition date is determined for illiquid staking
In Single-In-Single-Out (SISO) transactions, the acquisition date of the outflow token is transferred to the inflow token. For example:
- You buy 1 ETH on January 1, 2020 for $500.
- You stake 1 ETH on December 1, 2022 (no capital gains or loss at this stage).
- Upon unstaking on May 1, 2023, the 1 ETH retains the original cost basis of $500 and the acquisition date remains December 1, 2022.
Disclaimer: Note that this article should not be construed as legal, tax, audit, accounting, or brokerage advice and that any and all information is provided for informational purposes only.