Are Ethereum (ETH) Gas Fees Tax Deductible?

Zac McClureUpdated at: Nov 22nd, 2021

Photo by Martin Adams

"Gas" is the name for transaction fees on the Ethereum blockchain. The fee's size depends on the supply and demand from the network's miners. If the available computational power does not meet the demand of users, miners can ask a higher fee for processing the transaction.

With increased interest in crypto driving gas fees up, you may be wondering if they can be deducted from taxes. Read on to learn more.

Ethereum (ETH) gas fees may be tax deductible

Because the IRS has not issued specific guidance on gas fees, we recommend treating gas fees conservatively. However, based on existing guidance, it is likely that gas fees' tax treatment depends on the type of the transaction they were charged for.

Trades and swaps

When a transaction is a trade or swap, gas fees can be added to an asset's cost basis. This later reduces capital gains or increases capital losses on that asset when it is sold or otherwise disposed of. This determination is based in the IRS’s guidance in Publication 551, which states that financial assets can have their cost basis increased by costs associated with the purchase.

For example:

  • You exchange 1000 USDC ($1000) for 1 ETH on Uniswap. 

  • You pay 0.01 ETH in gas fees, which is equivalent to $10. 

  • Your cost basis for the 1 ETH would be $1,010. 

Then…

  • You sell the 1 ETH for $1,020 USD (assuming no fee on the sale, for simplicity). 

  • If the gas fee paid on acquisition was ignored, you would have a $20 capital gain. 

  • With this gas fee accounted for, you have only a $10 capital gain.

Claiming yield farming, staking, and airdrop rewards

When you claim yield farming rewards (e.g. CRV from Curve), airdrops (e.g. UNI from Uniswap) or staking rewards (e.g. SNX and sUSD from Synthetix), the crypto received is taxed as income. 

When crypto is received as income, your cost basis is the market value. However, you can add gas fees to this cost basis so that you have lower capital gains or higher capital losses when you sell these assets.

Transfers and other miscellaneous transactions

Transfers and other miscellaneous blockchain fees are treated differently than the previous two examples because they don't involve the acquisition of an asset. Thus, it’s not a straightforward situation of adding the fee to the cost basis. 

There are multiple ways to approach tax treatment of these fees, ranging from conservative to aggressive. Please note that we recommend the conservative approach, as aggressive approaches may not stand up to later IRS scrutiny:

  • Conservative: Treat ETH fees spent in this instance as taxable sales, as if you had spent ETH on a good or service. 

  • Medium: Claim the ETH spent on fees as removed from your holdings, but don’t recognize a capital gain or loss. 

  • Aggressive: Claim ETH as a sale for 0 USD, claiming a capital loss on ETH spent. 

You could also potentially add ETH transfer fees to your cost basis. However, the IRS could argue that these transfers were not necessary for the subsequent ETH sale to take place, thus this is a more contentious tax standpoint. 

Using ETH gas fees to offset income

As an individual, you cannot directly offset income with expenses. However, if you yield farm as a business, either as self employed or within a business entity like an LLC or corporation, you could deduct gas fees for yield farming as business expenses. 

These businesses expenses would offset your income from yield farming, much like a bitcoin miner would offset their mining income with electric and equipment fees. 

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