Crypto Interest Tax: IRS Guidelines 2024

Crypto interest is the return you earn by lending or staking your cryptocurrency, similar to earning interest in a savings account. Platforms offering interest-bearing crypto accounts allow users to deposit their assets and earn a percentage yield over time. Crypto interest has become a popular way to earn passive income, especially for those who hold digital assets for extended periods.

As crypto interest grows, understanding crypto interest tax implications is essential. Like traditional interest, the IRS generally considers crypto interest taxable income. This means you'll likely owe taxes on your crypto interest income if you’re earning a small percentage on a stablecoin or a higher rate on other assets.

Looking to calculate your crypto profit? Try our free crypto profit calculator.

There are several ways to earn interest on crypto, with each method offering different rates and structures:

• Crypto Lending: Platforms like BlockFi and Coinbase allow users to lend their crypto and earn interest.

• Staking: Some blockchains, like Ethereum 2.0 and Cardano, let users earn crypto staking rewards by locking up assets to support the network.

• Yield Farming: DeFi platforms like Uniswap and Yearn Finance offer interest through liquidity pools.

• Interest-Bearing Accounts: Many exchanges now offer interest-bearing accounts where users can deposit stablecoins or other crypto to earn a fixed rate.

Each method for earning interest may come with different crypto interest tax obligations. Whether through lending, staking, or yield farming, it’s essential to understand how each type of interest may impact your crypto interest tax.

Yes, crypto interest is typically taxable, just like traditional interest income. The IRS considers crypto interest earnings as income, which means they are subject to federal income tax. You must report this income on your tax return when you earn interest on your crypto holdings—whether through lending, staking, or yield farming.

So, do you have to pay taxes on crypto interest? Absolutely. Failing to report crypto interest income can lead to penalties or other issues with the IRS. By staying on top of crypto interest tax rules and reporting all earnings, you ensure compliance with tax laws and avoid potential penalties.

Learn more about the current tax rates for cryptocurrency.

Reporting crypto interest income requires accurate record-keeping and knowledge of the fair market value of the interest received. Each time you earn interest, you’ll need to report the amount based on its value in fiat currency at receipt. For example, if you earn 0.5 ETH as interest, you’ll report its value in dollars on that date.

Do you pay taxes on crypto interest every year? Generally, yes. Since crypto interest is typically earned in periodic payments, you’ll report each payment as income for the tax year it was received.

How is crypto interest taxed? This depends on your region and how the interest was received. Regardless of how you receive your crypto interest and where you pay taxes, TokenTax simplifies this process by organizing and calculating all your crypto interest, making it easy to stay compliant.

Learn more in our DeFi tax guide.

TokenTax offers tools specifically designed to calculate and report crypto interest tax. By automatically tracking interest earned from various platforms, TokenTax helps you accurately record all taxable events. Whether your crypto interest comes from lending, staking, or yield farming, TokenTax organizes it all for you.

With TokenTax, reporting crypto interest becomes straightforward, helping you meet IRS guidelines and avoid the stress of manual calculations. Our platform also provides up-to-date guidance on the latest crypto tax regulations, ensuring you know how crypto interest is taxed.

Looking to calculate your crypto taxes? Try our free crypto tax calculator.

Crypto interest tax FAQs

Is interest on cryptocurrency taxable?

Yes, the IRS considers interest on cryptocurrency as taxable income. Each interest payment you receive must be reported for federal income tax purposes.

Is stablecoin interest taxable?

Yes, stablecoin interest is taxable, just like interest earned on any other type of crypto. The IRS requires reporting of all crypto interest, including that earned from stablecoins, as income.