Crypto lending allows individuals to lend their crypto to borrowers for a return. Transactions can be categorized as:
- Liquid lending: Deposits or withdrawals in exchange for a tradable, liquid token.
- Illiquid lending: Deposited assets are locked and cannot be traded until withdrawn.
Understanding the lending categories
CoinTracker has two categories, Lending Deposit and Lending Withdrawal, to help customers accurately record these transactions. These can be classified as:
- Lending deposit: A trade (for liquid lending) or a send (for illiquid lending).
- Lending withdrawal: A trade (for liquid lending) or a receive (for illiquid lending).
Tax treatment for lending transactions
Liquid lending transactions
By default, lending deposits and withdrawals for liquid lending are treated as taxable transactions like any other trade. However, you can change these default settings to treat them as non-taxable.
When treated as non-taxable:
- The cost basis transfers (plus the fee) from the outgoing token (lending deposit) to the incoming token (lending withdrawal).
To change the default settings:
- Navigate to Settings.
- Click the Tax tab.
- Click Treat liquid lending 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.
Liquid lending treated as non-taxable example
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- Let’s say we purchased ETH on 12/08/2022 and then did two lending deposits on 06/08/2022:
- The acquired date of aArbWETH (the liquid lending token) would be 12/08/2022—the same date as the ETH was purchased
- Later we facilitated two lending withdrawals on 12/08/2023 and sold the retrieved ETH the same day:
- The date acquired for ETH remains 12/08/2022.
- Let’s say we purchased ETH on 12/08/2022 and then did two lending deposits on 06/08/2022:
Illiquid lending transactions
Illiquid lending deposit transactions appear as Send (outgoing) transactions and are treated as non-taxable.
Missing balance error for lending transactions
CoinTracker flags a Missing Balance error when a Lending Withdrawal is tagged without a corresponding Lending Deposit. To resolve this:
- Refer to this help article for steps.
- You'll need to either locate the corresponding Lending Deposit or split interest income from the principal amount.
Transactions without a matched Lending Deposit will have a cost basis of $0.
Disclaimer: This information is for informational purposes only and should not be considered legal, tax, or financial advice. Please consult a tax professional for specific guidance.