Axie Infinity Taxes: Complete Guide 2024

Do I need to pay taxes when I exchange my SLP or AXS for other types of cryptocurrency? 

Yes. Crypto-to-crypto trades are considered taxable events by the IRS. You will likely incur capital gains or losses based on how the price of your SLP and/or AXS has changed since you originally received the tokens. 

How do I report scholarships on my taxes? 

Some Axie Infinity players choose to give out “scholarships'' to players who cannot afford the cost of the 3 Axies that are needed to get started with the game. 

It works like this: A manager buys 3 Axies that are given to a “scholar”, who can start playing the game and earning SLP. The manager and scholar then split the revenue that is earned. 

If you’re a scholar, you’ll need to report the tokens that you’ve earned as ordinary income. 

If you’re managing a scholarship as part of a business, you can report Axie Infinity income and related expenses, including scholarship payments, on Schedule C of your tax return. 

If you’re not sure whether your gaming activity constitutes a business or a hobby, please reference this IRS guidance on the mattertax tip. If you have further tax questions about your Axie Infinity activity, please make sure you discuss your situation with a tax professional. 

Are gas fees tax deductible? 

If you played Axie Infinity before the introduction of the Ronin sidechain, you may have paid significant gas fees when transferring your assets. Unfortunately, gas fees for transferring cryptocurrency from one account to another typically are not tax deductible, unless gas fees are a necessary expense of running your business. 

However, gas fees that were incurred while buying or selling SLP, AXS, or Axies can be used to reduce your capital gains. For more information, check out our guide to how gas fees are taxed. 

Is there a tax benefit to breeding Axies? 

To prevent the supply of Axies from increasing dramatically, each Axie can only be bred a total of 7 times. Each time an Axie is bred, it loses some of its value. If you sell one of your Axies at a loss, you’ll likely be able to claim it as a capital loss. 

How do I determine the value of a newly-bred Axie? 

While the IRS hasn’t released clear guidance on this question, it’s likely that breeding new Axies needs to be reported as ordinary income. 

To estimate the value of your newly-bred Axies, you can look at other Axies with similar characteristics such as class and stats. If you do choose to go this route, you’ll need the following information. 

• The date that your Axie was bred 
• The market value of similar Axies on that date 
• The value of Ethereum on that date 

Are Axies taxed as collectibles? 

The IRS has not clarified whether Axies should be taxed as collectibles.

Some tax experts say that Axies are simply a digital version of physical trading cards that have historically been taxed as collectibles. Others argue that Axies should be subject to regular capital gains taxes, just like other crypto assets. 

If Axies are determined to be collectibles, Axies that are disposed of after a year will be subject to a higher long-term capital gains rate (up to 28%). Axies that are disposed of after less than a year will be subject to the typical short-term capital gain tax rate. 

For more information, check out our complete guide to NFT taxes.

How can I keep track of my cryptocurrency taxes? 

Cryptocurrency tax software like CoinLedger can be used to automate the tax reporting for your cryptocurrency activity.

By integrating directly with the exchanges, blockchains, and protocols that you use, CoinLedger can generate gains, losses, and income reports from your historical transactions with the click of a button.

You can join over 500,000 other crypto investors and find out your portfolio gains and losses as well as calculate your taxes by creating a free account here.