This guide covers liquid and illiquid staking transactions, how to categorize them, and default tax treatments.
For an in-depth look at staking rewards, review this guide instead: Understanding Staking Rewards Transactions
For instructions to change the default tax treatment settings for liquid staking transactions: How to Change the Default Tax Treatment for Staking and Staking Rewards Transactions
What is staking?
Cryptocurrency staking is a popular way for users to earn passive income by participating in blockchain networks. However, the tax treatment of staking activities can be complex. CoinTracker provides tools and options to tailor these settings to individual preferences, but users should remain aware of their tax obligations and consult a tax professional if needed. For more detailed staking tax guidance, refer to CoinTracker's Ultimate Tax Guide for Crypto Staking.
There are two different types of staking:
- Liquid Staking: Liquid staking involves depositing cryptocurrency into a staking service or protocol in exchange for a liquid stake token (LST) and custody of the LST yields staking rewards. The LST tokens are accessible for trading and can be disposed at any time.
- Illiquid Staking: Illiquid staking refers to the process of locking up cryptocurrency for staking rewards or participating in DeFi protocols where tokens are inaccessible for trading. With illiquid staking, a different token isn’t received, and the staked token cannot be accessed until they are unstaked or unlocked.
Note: When engaging in liquid staking, the tax implications may differ from those of illiquid staking. Users should remain aware of their tax obligations and consult a tax professional as needed. For more detailed staking tax guidance, refer to CoinTracker's Ultimate Tax Guide for Crypto Staking.
Categorizing Staking Transactions in CoinTracker
If CoinTracker does not automatically categorize your staking transactions, we have options to manually categorize liquid staking deposits and withdrawals:
- Stake: Assets were sent from your wallet as a staking deposit. Category can be applied a trade or mint transaction, (for liquid staking) or a send (for illiquid staking).
- Unstake: Assets were returned to your wallet as a staking withdrawal. Category can be applied a trade (for liquid staking) or a receive (for illiquid staking).
How to Categorize from the Transactions Page After Import
Learn how to change the category for a transaction on the Transactions page here: How to Change a Transaction Category
How to Categorize in a CoinTracker CSV Using Tags
If importing transactions via a CoinTracker CSV you can use these tags to categorize the transaction:
- stake
- unstake
Tax Treatment of Liquid Staking
By default, transactions categorized as 'stake' or 'unstake' for liquid staking are treated as taxable like any other trade.
Alternatively, we provide the option to configure our CoinTracker settings to treat staking and unstaking transactions as non-taxable. When marked as non-taxable:
- The cost basis (plus the fee) transfers from the outgoing token to the incoming token.
- For Single-In-Single-Out (SISO) transactions, the acquisition date of the outgoing token transfers to the incoming token.
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For Multiple-In-Multiple-Out (MIMO) transactions, the staking transaction date becomes the acquisition date for the incoming token.
Examples of How the Acquisition Date is Determined for Liquid Staking
Single-In-Single-Out Transaction Example
- You bought ETH on January 1, 2022.
- Then you staked that ETH on January 10, 2022 and received stETH as an LST (liquid stake token).
- The date acquired for ETH on your 8949 tax form would be January 1, 2022 (the purchase date of the original ETH), not January 10, 2022.
- If you later unstaked 1 stETH and received 1 ETH back on February 1, 2022, and sold it the same day.
- The date acquired for the sold ETH remains January 1, 2022 (the purchase date of the original ETH), not February 1, 2022.
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Here is what that would look like on the 8949 tax form:
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Multiple-In-Multiple-Out Transaction Example
- If you bought 1 ETH and 1 cbETH on January 1, 2022, then staked both quantities on January 10, 2022, and received stETH as an LST(liquid stake token)
- If you later unstaked both and received 2 ETH back on February 1, 2022, and sold it the same day:
- The date acquired for the 2 ETH remains January 10, 2022, not February 1, 2022.
Tax Treatment of Illiquid Staking
Illiquid staking transactions tagged as 'stake' or 'unstake' are treated as non-taxable by default. This means:
- Staking deposits ('Stake') are treated as outgoing transactions marked as staked lots for the respective wallet. These lots will not be available for sales, trades, or transfers.
- Staking withdrawals ('Unstake') are treated as incoming transactions and reduce the staked lots. These lots will be available to sell, trade, or transfer.
- Cost basis and acquisition date information transfer as the assets move from available lots to staked lots and back to available lots. This ensures that the original purchase details are retained.
Caution: Users need to be aware that CoinTracker applies the cost basis method (HIFO, FIFO, LIFO) set for their CoinTracker account to staking and unstaking transactions which may lead to different outcomes than expected. Cost basis is determined based on the user's overall portfolio and not individual staking services.
- For example, you use FIFO (First In, First Out) and stake ETH on 3 different dates. CoinTracker follows the cost basis method when unstaking a portion of the ETH, so the first staked asset will be the first one unstaked.
Example of 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:
- Suppose a user purchased 1 ETH on January 1, 2020 for $500.
- Then stakes that 1 ETH on December 1, 2022. When staked, no capital gain or loss calculation is made.
- Upon unstaking on May 1, 2023, the 1 ETH's cost basis remains $500, and the acquisition date remains December 1, 2022 (original purchase date).
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.