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Crypto Mining Accounting and Tax: Income at Receipt, Equipment Depreciation, ASC 350-60

By The Ledgerism Editorial Team · The Ledgerism Brief Editorial Team produces original, methodology-disclosed accounting and tax research—data trackers, databases, and reference guides built to be the most-cited source in the field. Every figure is verified against primary sources including FASB, the IRS, the PCAOB, NASBA, the AICPA, and state boards of accountancy.

Crypto mining accounting begins with one rule that has held since 2014: mined coins are ordinary income at their fair market value on the date of receipt under Notice 2014-21. If mining is a trade or business, that income is also subject to self-employment tax, and equipment can be depreciated or expensed. The coins held are then carried at fair value under ASC 350-60.

What is crypto mining?

Mining is the process by which proof-of-work blockchains, most prominently bitcoin, validate transactions and issue new coins. Miners run specialized hardware that competes to solve a cryptographic puzzle; the winning miner adds the next block and receives a block reward plus transaction fees. Mining requires substantial capital for hardware and ongoing operating cost for electricity and cooling, which is why the business-versus-hobby distinction carries real consequences.

Mining differs from staking, which secures proof-of-stake networks and which we cover in our staking rewards accounting and tax guide. Both produce ordinary income at receipt, but mining is far more equipment-intensive, so depreciation and operating-expense deductions play a much larger role. The activity sits within the broader crypto tax accounting framework.

The economics of mining make the business-versus-hobby determination the first question to settle, because it controls everything downstream. A genuine mining business deducts electricity, depreciates or expenses hardware, and can report a net loss in a bad year, while the same activity treated as a hobby produces taxable income with no offsetting deductions. The factors courts weigh under IRC Section 183 include the manner in which the activity is carried on, the expertise of the taxpayer, the time and effort expended, the expectation of asset appreciation, the taxpayer’s history of income or loss, and the presence of a genuine profit motive. A miner who keeps separate books, maintains dedicated facilities, and operates with scale is far better positioned to defend business treatment than a hobbyist running a single rig in a spare room.

The tax treatment

Notice 2014-21 holds that a taxpayer who successfully mines virtual currency realizes gross income equal to the fair market value of the coins as of the date of receipt. The character is ordinary income. If the mining constitutes a trade or business and is not undertaken as an employee, the net earnings are subject to self-employment tax under IRC Section 1402. The fair market value included in income becomes the coins’ cost basis under IRC Section 1012, and a later sale produces capital gain or loss measured from that basis.

The business-versus-hobby line is governed by IRC Section 183 and the regularity, continuity, and profit-motive factors developed in case law. A business miner reports income and expenses on Schedule C, deducts ordinary and necessary expenses under IRC Section 162, and pays self-employment tax. A hobby miner reports the income but cannot deduct expenses against other income and is barred from creating a loss under Section 183.

Two distinct taxable events occur. First, ordinary income at receipt. Second, capital gain or loss when the mined coins are later sold, equal to amount realized minus the basis set at receipt under IRC Section 1001. Holding period for the capital-gain analysis begins the day after the coins are received.

A practical wrinkle is mining-pool timing. Most individual miners do not solo-mine; they join a pool that aggregates hash power and distributes rewards according to a payout scheme such as pay-per-share or proportional. The income recognition point is when the miner gains dominion and control over the pool payout, which is typically when the pool credits the miner’s balance and the miner can withdraw, not when the pool itself finds a block. Where a pool sets a minimum withdrawal threshold, a reasonable position is that income arises as amounts are credited and available, with the threshold affecting practical access rather than the legal right. Miners should keep the pool’s payout records, because those records establish both the receipt date and the fair market value used for income and basis.

The frequency of receipts is what makes mining recordkeeping demanding. A miner receiving small pool payouts daily has hundreds of separate income events in a year, each with its own fair market value and basis. The aggregate ordinary income is the sum of all receipts at their respective values, and the basis carried into the later capital-gain computation is the same per-receipt value. Reconstructing this after the fact is difficult, so contemporaneous capture of payout amounts and prices is the only reliable approach.

Equipment depreciation and operating expenses

For a business miner, mining rigs are tangible personal property eligible for cost recovery. Under MACRS, computer and data-handling equipment generally falls in the 5-year property class, while certain other machinery may use a 7-year class. Two acceleration options exist. IRC Section 179 allows immediate expensing of qualifying property up to the annual dollar limit, subject to a taxable-income limitation and a phase-out once total purchases exceed the threshold. Bonus depreciation under IRC Section 168(k) allows an additional first-year deduction on qualified property; the bonus percentage has been phasing down under the schedule enacted in prior legislation, so the applicable percentage depends on the year the equipment is placed in service.

Operating costs are deductible under IRC Section 162 when mining is a business. Electricity is typically the largest, and it is deductible in full as an ordinary and necessary expense; miners should keep utility records that separate mining load from personal use. Hosting fees, pool fees, internet, repairs, and cooling are likewise deductible. Where a home is used, the home-office and listed-property substantiation rules apply.

The depreciation choice has timing and risk consequences that go beyond the first year. Section 179 expensing is limited to the taxpayer’s taxable income from the active conduct of a trade or business, so a miner with a low-income year cannot use Section 179 to create a loss; the disallowed amount carries forward. Bonus depreciation under Section 168(k) has no taxable-income limit, so it can create or increase a loss, but the bonus percentage applies to the year the property is placed in service and has been stepping down under the statutory schedule. Miners also face recapture: if equipment expensed under Section 179 or bonus is later sold or converted to personal use, depreciation recapture under IRC Sections 1245 can convert prior deductions back into ordinary income. Given how quickly mining hardware becomes obsolete, recapture on equipment turnover is a recurring item rather than an edge case.

Where mining is conducted through an entity, the choice of entity affects the self-employment and loss picture. A sole proprietorship reports on Schedule C with full self-employment tax exposure. An S corporation can pay the owner a reasonable salary subject to employment taxes while remaining profits pass through without self-employment tax, though the IRS scrutinizes unreasonably low salaries. A partnership generally passes self-employment income through to general partners. The entity decision should weigh the self-employment exposure, the loss-utilization rules, and the administrative cost.

The accounting treatment (ASC 350-60 / ASU 2023-08 reference)

An entity that mines and holds crypto applies ASC 350-60, added by ASU 2023-08 and effective for fiscal years beginning after December 15, 2024. Mined bitcoin and similar coins meet the six scope criteria in ASC 350-60-15-1. Initial measurement under ASC 350-60-30-1 is fair value at acquisition, which mirrors the tax basis figure. Subsequent measurement under ASC 350-60-35-1 is fair value at each reporting date through net income, replacing the prior ASC 350-30 impairment-only model. Disclosures under ASC 350-60-50 include disaggregation by significant holding, cost-basis methodology, realized and unrealized gains and losses, and a roll-forward. The public-company mining adopters are tracked in our 2026 FASB ASU 2023-08 adoption tracker.

A recognition nuance is whether mining rewards are revenue under ASC 606 or a gain on receipt of an asset. Many miners conclude there is no contract with a customer when block rewards are received from the protocol, so the reward is recognized at fair value as the carrying amount of the coin with a corresponding gain, not as ASC 606 revenue. Transaction fees paid by users may warrant separate analysis depending on facts.

Business mining vs hobby mining comparison

Worked example

Assume a sole proprietor operates a mining business. During the year the miner receives 0.5 BTC of block rewards, recognized at fair market value as received, totaling $40,000. The miner buys $30,000 of rigs placed in service mid-year and incurs $12,000 of electricity.

• Ordinary income on receipt: $40,000, reported on Schedule C, subject to self-employment tax under IRC Section 1402.
• Equipment: the miner elects Section 179 to expense the full $30,000 of rigs in the first year, subject to the taxable-income limitation.
• Electricity: $12,000 deductible under IRC Section 162.
• Net Schedule C income: $40,000 minus $30,000 minus $12,000 equals a $2,000 loss, which is allowable because this is a business and not a hobby. Cost basis in the 0.5 BTC is $40,000.
• Later sale: the miner sells the 0.5 BTC for $55,000 fourteen months later. Capital gain equals $55,000 minus $40,000, or $15,000 of long-term capital gain.

The example separates the ordinary-income event from the capital-gain event and shows how equipment expensing and electricity offset the receipt income. A hobby miner with the same facts would report $40,000 of income with no offsetting deductions and no Section 179, illustrating why the Section 183 determination is so consequential.

Recent guidance (IRS rulings, Rev. Procs., FASB updates)

Notice 2014-21 remains the foundational guidance: it established that mined virtual currency is gross income at fair market value on receipt and that mining as a trade or business produces self-employment income. The notice’s Q&A format continues to be cited by the IRS in subsequent digital-asset guidance.

Rev. Proc. 2024-28 ended universal basis tracking and requires account-by-account, wallet-by-wallet basis tracking effective January 1, 2025, which affects how a miner assigns basis when selling coins from multiple wallets. The Form 1099-DA broker-reporting regime captures dispositions at centralized brokers but does not directly report block-reward income, so miners must track receipt-date value independently.

On accounting, ASU 2023-08 and ASC 350-60 govern in-scope mined coins for entities, effective for fiscal years beginning after December 15, 2024, ending the impairment-only model for fungible crypto. Depreciation parameters, including the bonus depreciation percentage under IRC Section 168(k) and the Section 179 limits, are set by statute and indexed, so the applicable figures depend on the placed-in-service year.

Common pitfalls

• Failing to recognize income at receipt. Mined coins are ordinary income at fair market value when received under Notice 2014-21, not when sold.
• Missing self-employment tax. Business mining net income is subject to self-employment tax under IRC Section 1402.
• Treating hobby mining as a business. IRC Section 183 disallows expense deductions and loss creation for hobby activity.
• Mis-recovering equipment cost. Rigs are depreciated under MACRS or expensed under Section 179 or Section 168(k); deducting the full cost as a current expense outside those provisions is improper.
• Not substantiating electricity. The deductible portion under IRC Section 162 must separate mining load from personal use.
• Double-counting on sale. Failing to use the receipt-date basis under IRC Section 1012 overstates the later capital gain.
• Applying impairment-only accounting after adoption. In-scope mined coins move to fair value through net income under ASC 350-60.

Frequently asked questions

When is mined crypto taxed?

At fair market value on the date of receipt, as ordinary income, under Notice 2014-21. That value becomes the coin’s cost basis.

Do I pay self-employment tax on mining?

Yes, if mining is a trade or business, the net income is subject to self-employment tax under IRC Section 1402. Hobby mining is not.

Can I deduct my mining rigs?

A business miner can depreciate rigs under MACRS or expense them under IRC Section 179 or take bonus depreciation under IRC Section 168(k), subject to the applicable limits.

Is electricity deductible?

Yes, for a business miner, electricity is an ordinary and necessary expense under IRC Section 162, with the mining portion separated from personal use.

What is the hobby-versus-business test?

It turns on regularity, continuity, and profit motive under IRC Section 183. A hobby miner cannot deduct expenses against other income or create a loss.

How do entities account for mined coins?

Under ASC 350-60 (ASU 2023-08), in-scope coins are measured at fair value through net income, effective for fiscal years beginning after December 15, 2024.

Is the block reward revenue under ASC 606?

Many miners conclude there is no customer or contract, so the reward is recognized as a gain at fair value rather than as ASC 606 revenue.

How do I track basis across wallets?

Rev. Proc. 2024-28 requires account-by-account basis tracking effective January 1, 2025, so basis is assigned within each wallet using FIFO, HIFO, or specific identification.