ETH 2.0 and Crypto Taxes

Ethereum recently switched to proof of stake. In general, staking rewards are treated as income, but there are other taxable events related to the Merge. Accointing.com has covered the tax implications for multiple countries listed below:

US

Merge: According to Question 30 of the IRS FAQs soft forks are not taxable events. While the merge is not technically a soft fork, the IRS states that “A soft fork occurs when a distributed ledger undergoes a protocol change that does not result in a diversion of the ledger and thus does not result in the creation of a new cryptocurrency.” Based on this definition and the outcome of the merge, it is safe to conclude that the merge is not a taxable event.

Trading of ETH 2.0: Trading of ETH 2.0 would result in taxable disposals no different than any other crypto trade.

ETH PoW: This hard fork would be taxed based on the guidance of Rev. Rul. 2019-24, as ordinary income based on the fair market value of the coins at the time the taxpayer obtains control.

Staking Rewards: as discussed above, while certainly ordinary taxable income, the timing of recognition of the income is not clear.

Trading of ETH 2.0 Rewards: Trading of staking rewards would result in taxable disposals no different than any other crypto trade.

UK

Merge: HMRC have provided guidance for soft forks, and since there is no token or distributed ledger created, these are not taxable events. HRMC have also added a paragraph about the beacon chain merge in their One-Way transfers analysis. They state that TCGA92/S43 applies to this type of transaction, which tells us that a portion of the cost from the original asset should go to the new asset. Since 100% of the cost of your ETH would be moved to ETH 2.0, it would appear that carrying over your tax basis to the ETH 2.0 is the right answer, with no taxable gain or loss. In other words, imagine that nothing happened, similar to a soft fork since no new token is created.

Trading of ETH 2.0: Trading of ETH 2.0 would result in taxable disposals no different than any other crypto trade.

ETH PoW: Any airdrops of other coins forked (such as ETH PoW) would be treated under hard fork rules, which tell us to allocate a portion of our original tax basis to the new forked coins.

Staking Rewards: Any staking income from staking ETH 2.0 would be treated the same as other staking income, miscellaneous income with the timing of recognition of this income undetermined.

Trading of ETH 2.0 Rewards: Trading or selling ETH 2.0 or rewards, would be subject to capital gains tax similarly to any other disposals of crypto assets.

Germany

Merge: The BMF has not given much guidance for the Ethereum merge or for soft forks. Since 100% of the cost of your ETH would be moved to ETH 2.0, it would appear that carrying over your tax basis to the ETH 2.0 is the right answer, with no taxable gain or loss.

Trading of ETH 2.0: Trading of ETH 2.0 would result in taxable disposals no different than any other crypto trade.

ETH PoW: This hard fork wouldn’t be taxable based on the guidance of the BMF but a portion of the original tax basis is allocated to the new forked coins and the acquisition date of the forked coins is the same as the original coins (ETH).

Staking Rewards: Any staking income from staking ETH 2.0 would be treated the same as other staking income, miscellaneous income with the timing of recognition of this income undetermined.

Trading of ETH 2.0 Rewards: Trading or selling ETH 2.0 or rewards, would be subject to capital gains tax similarly to any other disposals of crypto assets.

Australia

Merge: The ATO has not given much guidance for the Ethereum merge or for soft forks. However, they have provided guidance on chain splits, which is the term they have chosen for hard forks. Regardless of terminology, what is important is the definition and reasoning, a chain split produces a new asset (e.g., BTC > BTC + BCH). Since the merge does not result in a new asset (ETH is still ETH), this would appear to be a nontaxable event where your cost basis in your ETH is simply carried over to the ETH 2.0 as if nothing had happened.

Trading of ETH 2.0: Trading of ETH 2.0 would result in taxable disposals no different than any other crypto trade.

ETH PoW: For any coins that are a result of hard forks (such as ETH PoW), Australia does not tax chain splits either, rather you acquire the coins with a $0 cost basis, meaning that when you dispose of the assets, you will pay tax on 100% of the proceeds.

Staking Rewards: The timing of the recognition of the staking rewards is also unclear, but the income is taxable as other income.

Trading of ETH 2.0 Rewards: Trading of staking rewards would result in taxable disposals no different than any other crypto trade.

Austria

Merge: The Ministry of Finance in Austria has not given much guidance for the Ethereum merge or for soft forks. Since the merge does not result in a new asset (ETH is still ETH), this would appear to be a nontaxable event where your cost basis in your ETH is simply carried over to the ETH 2.0 as if nothing had happened.

Trading of ETH 2.0: Trading of ETH 2.0 would result in taxable disposals no different than any other crypto to fiat trade.

ETH PoW: This hard fork would not be taxed based on the guidance of the Ministry of Finance in Austria and the cost basis would be $0.

Staking Rewards: Staking rewards would not be taxed based on the guidance of the Ministry of Finance in Austria and the cost basis would be $0.

Trading of ETH 2.0 Rewards: Trading of staking rewards would result in taxable disposals with a cost basis of $0 if disposed for fiat currencies.

Switzerland

Merge: As Switzerland does not impose a tax on capital gains, the merge is an irrelevant event for tax purposes, you will pay a tax based on the value of your portfolio at year end.

Trading of ETH 2.0: As Switzerland does not impose a tax on capital gains, trading ETH 2.0 is not a taxable event, you will pay a tax based on the value of your portfolio at year end.

ETH PoW: The hard fork is not a taxable event and not subject to income tax, you will pay a tax based on the value of your portfolio at year end.

Staking Rewards: Any staking income from staking ETH 2.0 would be treated the same as other staking income and is taxable based on value when received.

Trading of ETH 2.0 Rewards: As Switzerland does not impose a tax on capital gains, trading ETH 2.0 rewards is not a taxable event, you will pay a tax based on the value of your portfolio at year end.

Full guide available here: https://hub.accointing.com/crypto-basics/crypto-knowledge/eth-2-0-explained-pos-and-taxes