How are initial cloud mining costs taxed?

Hello,

in cloud mining services like bitdeer.com one typically pays an initial fee in order to setup a cloud mining contract that runs for a pre-specified amount of time (like 130 days).

Mining is then carried out throughput the specified time range, involving various fees (electricity and maintenance fees) and (possible) returns.

See for example here: https://www.bitdeer.com/pricing?id=1 where 375 Dollar need to be payed for a 100 TH/s contract. The 375 Dollar are initial costs and independent of other fees.

I wonder, how is this initial fee (the 375 Dollar in the example above) taxed ? Does this actually count as a ‘fee’ and therefore against capital gains ? Or does it count as a purchase ?

thx and cheers

Hey! if you run the mining operation like a business with profit motive, you can write off that expense as a business expense on schedule C along with other mining related expenses.

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And what if the mining service is used without being under the umbrella of a business ? In that case do the the initial fees simply count as a (taxable) purchase ?

I hope you paid the initial fee in USD.

When you pay a fee in USD, there is no taxable event.

Now, since you paid some money to obtain ETH, there are 2 ways you can get some tax benefit for this expense.

  1. As you mentioned, reduce your capital gains by this amount. (instant benefit and more aggressive than #2)
  2. Add the expense to the cost basis of ETH you received. This way, when you later sell ETH, you would have less capital gains. (benefit in the future and less aggressive than #1)
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Thank you, this is good info :+1:

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