See this from the IRS:

The character of gain or loss from the sale or exchange of virtual currency depends on whether the virtual currency is a capital asset in the hands of the taxpayer.

Scenario A: John mines 2 Monero in 2017 at a price point of ($20 x 1) and ($23 x 1), but doesn't sell. Is this $43 in income, or is it income only when he sells?

Scenario B: Jane mines 0.1 Bitcoin in five different chunks of 0.02 each at a price in each chunk of ($1400 x 0.02), ($1401 x 0.02), ($1405 x 0.02), ($1407 x 0.02) and ($1408 x 0.02). She sells her 0.1 Bitcoin at a Bitcoin price point of $3000 per Bitcoin, meaning she made $300. Based on the IRS site, what does she owe in taxes?

Per the first question below: so, Jane owes taxes on the income of 140.42 (28 + 28.02 + 28.1 + 28.14 + 28.16)? Now, she then sells that 0.1 Bitcoin for $300. Is the cost basis for the sell $140.42, so a capital gain of 159.58?


1 Answer 1


It looks like fair-market value when you receive your virtual currency is counted as income. And you're also subject to self-employment tax on that income. Here's an FAQ from the IRS:

Q-8: Does a taxpayer who “mines” virtual currency (for example, uses computer resources to validate Bitcoin transactions and maintain the public Bitcoin transaction ledger) realize gross income upon receipt of the virtual currency resulting from those activities?
A-8: Yes, when a taxpayer successfully “mines” virtual currency, the fair market value of the virtual currency as of the date of receipt is includible in gross income. See Publication 525, Taxable and Nontaxable Income, for more information on taxable income.
Q-9: Is an individual who “mines” virtual currency as a trade or business subject to self-employment tax on the income derived from those activities?
A-9: If a taxpayer’s “mining” of virtual currency constitutes a trade or business, and the “mining” activity is not undertaken by the taxpayer as an employee, the net earnings from self-employment (generally, gross income derived from carrying on a trade or business less allowable deductions) resulting from those activities constitute selfemployment income and are subject to the self-employment tax. See Chapter 10 of Publication 334, Tax Guide for Small Business, for more information on selfemployment tax and Publication 535, Business Expenses, for more information on determining whether expenses are from a business activity carried on to make a profit.

You'd of course be able to offset that income with the expense of mining the virtual currency, depreciation of dedicated mining equipment, electricity, not sure what else.

Edit: Here's a good resource on filing taxes with Bitcoin:

Filling in the 1040
Income from Bitcoins and all crypto-currencies is declared as either capital gains income or ordinary income, for example from mining.
Ordinary income will be declared on either your 1040 (line 21 - Other Income) for an individual, or within your Schedule C, if you are self-employed or have sole-proprietor business.
Capital Gains
Capital gains income, or losses, are declared on Schedule D. Since there are no reported 1099 forms from Bitcoin exchanges, you will need to include your totals with Box C checked for short-term gains, and with Box F checked for long-term gains.

Interesting notes from that article, your first example could actually be trickier than expected if you started mining before there was a Monero to USD exchange. Also, there can also be capital gains implications from using your virtual currency to buy goods, which sounds like a pain to keep track of.

  • 1
    So, Jane owes taxes on the income of 140.42 (28 + 28.02 + 28.1 + 28.14 + 28.16)? Now, she then sells that 0.1 Bitcoin for $300. Is the cost basis for the sell $140.42, so a capital gain of 159.58? May 2, 2017 at 19:35
  • @JugiChibor0 That's my understanding, but you'd offset the income with expenses associated with mining, and that wouldn't affect the basis for your capital gain calculation.
    – Hart CO
    May 2, 2017 at 19:50

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