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Recap HomeIRS Virtual CurrenciesUK Tax GuideSA Tax Guide
  • Cryptocurrency Tax Guide for US Individuals
    • Virtual Currency & Cryptocurrency
    • Who are Recap?
  • CRYPTOCURRENCY TAX
    • Do I Need to Pay Tax on my Crypto?
    • Which Taxes Apply?
      • Capital Gains Tax (CGT)
      • Income Tax
      • Non-Taxable Transactions
    • How Much Tax Will I Pay?
    • Capital Gains Tax
      • Calculating the Capital Gains and Losses
      • Cost Basis Methods
      • Disposal proceeds
        • Non Taxable Events
        • Taxable Events
        • Donating cryptocurrency to a charitable organization
        • Gifting cryptocurrency to another person
    • Income Tax
      • Receiving cryptocurrency from mining
      • Receiving cryptocurrency rewards
      • Forks
      • Airdrops
      • Tax on Tokenswaps and Mainnetswaps
    • Deductibles and Reducing Capital Gains
  • TRANSACTION TYPES
    • 💷Selling Crypto for Fiat
    • 🛍️Purchases using Crypto
    • 🔄Exchanging one crypto for a different crypto
    • 🎗️Donations to Qualified Charities
    • 🎁Gifts
    • 🎈Airdrops
    • 🤝Staking
    • 💸Transfers
    • 🍴Forks
    • ⛏️Mining
    • 👛Employment income
    • 🚨Lost & Stolen Crypto
    • 💧Liquidity Pools
    • 🔮Cryptoasset derivatives (CFDs, Futures and Margin Trading)
    • 💼Crypto Loans
    • 💎Lending Rewards
    • 🪞Reflections Rewards
    • 👥Referral Income
    • 💳Cashback
    • 🎨NFTs (Non Fungible Tokens)
    • 🎮Play-to-earn gaming NFTs
  • Record Keeping
  • Reporting Income and Gains to the IRS and Paying the Tax
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On this page
  • Are crypto loans taxable?
  • Things to watch out for
  • Are crypto loan interest payments considered tax-deductible?

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  1. TRANSACTION TYPES

Crypto Loans

Investors with a large holding of crypto assets may wish to take a loan against their portfolio to unlock some of their wealth. In this scenario they may wish to avoid disposal of an asset to avoid a taxable event.

Instead of selling their assets, it's possible to use crypto assets as collateral to take out a loan thereby avoiding selling the underlying assets.

Are crypto loans taxable?

Loans have long been considered non-taxable by the IRS. It’s reasonable to assume that cryptocurrency loans will be treated the same way.

Things to watch out for

Some decentralized protocols use crypto-to-crypto swaps to facilitate loans. For example, if you use BTC as collateral on a platform, you might be given pBTC in return. Swaps typically generate a taxable event and given the lack of explicit guidance from the IRS, this may be considered a swap rather than a loan.

How you chose to report this type of loan will depend on if you want to take an aggressive stance or a more conservative approach to your tax position. A conservative view would treat the loan as a swap for a new token and as such treat this as a disposal and then capital gains or losses depending on how the value of the asset has changed.

An aggressive approach would treat this entirely as a loan, treating the new token as a 'claim ticket' and avoid declaring anything to the IRS.

In either case, it's always advisable to consult a CPA with these more complex types of trades.

Are crypto loan interest payments considered tax-deductible?

Whilst there has been no official guidance, we can assume that interest on crypto loans will be treated in a similar way to normal loans by the IRS and as such they should be tax-deductible for business expenses.

Typically, interest on personal loans (for car payments, groceries or other general living expenses) is not tax deductible.

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Last updated 3 years ago

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