BLOG
/
Crypto Taxes
checkCircle
Expert verified
8 min read

Do I Need to Pay Taxes on Crypto Loans?

Do I Need to Pay Taxes on Crypto Loans?
Do I Need to Pay Taxes on Crypto Loans?
info
Our Editorial Standards:
Our content is designed to educate the 500,000+ crypto investors who use the CoinLedger platform. Though our articles are for informational purposes only, they are written in accordance with the latest guidelines from tax agencies around the world and reviewed by certified tax professionals before publication. Learn More
on this page
close

Wondering how your cryptocurrency loan is taxed? 

Cryptocurrency taxes are hard to navigate for even seasoned investors. Because crypto is a new asset class, the IRS has yet to provide clear guidance on some common transaction types, including loans. 

In this guide, we’ll share everything we currently know about how cryptocurrency loans are taxed — whether you are using a centralized or decentralized provider. We’ll also explain some gray areas in the tax code and break down different approaches to reporting your loans. 

Cryptocurrency loans explained 

Some investors hold a large portion of their net worth in crypto assets. Though they may need to withdraw some of their holdings for personal use, they are reluctant to sell their cryptocurrency and incur a taxable event. 

Instead of selling their assets, investors often use their cryptocurrency as collateral to take out a loan. This way, they can receive money for personal use without selling their crypto-assets. 

Where can I take out a crypto loan? 

Currently, cryptocurrency loans are offered by both centralized platforms like BlockFi, Celsius, and Nexo as well as decentralized protocols such as Compound. For more information, check out our guide to crypto loan providers

Are crypto loans taxable? 

Loans have long been considered non-taxable by the IRS. It’s reasonable to assume that for the most part, cryptocurrency loans will be treated the same way. 

However, there are certain unique situations where taking out a crypto loan may incur a taxable event. 

Gray areas in the tax code 

Some decentralized protocols use crypto-to-crypto swaps to facilitate loans. For example, if you use ETH as collateral for a platform like Compound, you will be given cETH in return. 

In the past, the IRS has said that crypto-to-crypto swaps are a taxable event. However, it’s not clear whether this transaction would fall into the same category. 

Because this is a gray area in the tax code, some investors choose a conservative approach to reporting these types of loans on their tax returns, while others opt for a more aggressive approach. 

Conservative approach: Treat the swap as a taxable event. Incur capital gains or capital losses depending on how the value of your collateral has changed since you originally received it. 

Aggressive approach: Treat this swap as a non-taxable loan and do not report it on your tax return. 

Are crypto loans considered tax-deductible? 

While the IRS has not put out guidance on whether crypto loan interest payments are considered tax-deductible, it’s likely that they’ll be treated similarly to traditional loans. 

If a business takes out a loan, interest payments can be considered a tax-deductible business expense. 

If a loan is taken for personal reasons, interest payments are typically not considered tax-deductible. Examples of this include using loan proceeds to pay for tuition, groceries, or car payments. 

In most circumstances, the interest paid from taking out an investment loan is tax-deductible. For example, should an investor use the money they receive from a loan and allocate it for investment purposes, the interest expense would be considered investment interest expense and is deductible up to your total investment income in a tax year. 

However, it’s important to note that any profits you make from investment loans will be taxed as capital gains or personal income, depending on the specific nature of the transaction. 

Crypto lending taxes

How are crypto loan liquidations taxed? 

Some protocols may liquidate your collateral if the value drops substantially. In this case, this is considered a disposal event and you will face a tax liability even if you do not receive the proceeds of the sale. 

Crypto loan liquidation taxes

How are self-repaying crypto loans taxed? 

Protocols like Alchemix offer ‘self-repaying loans’. These protocols deposit your collateral in yield generation protocols to generate income and repay your loan over time. In this case, your loan repayments will likely be considered debt cancellation income and trigger an income tax liability. 

Self-repaying crypto loans taxes

An easy way to report your cryptocurrency taxes

Looking for an easy way to stay on top of your cryptocurrency tax liability? Crypto tax software can help. 


With CoinLedger, it’s easier than ever to keep track of your holdings across multiple exchanges, wallets, and decentralized protocols. The platform integrates with platforms like Coinbase, Kraken, and Gemini to simplify the tax reporting process. 

Get started with a free account and join the 500,000+ other investors who use CoinLedger to report their taxes in minutes. 

Frequently asked questions

  • MinuPlus
  • MinuPlus
  • MinuPlus
  • MinuPlus
  • MinuPlus
  • MinuPlus
...
Want to try CoinLedger for free? Claim your free preview tax report.

Join 500,000 people instantly calculating their crypto taxes with CoinLedger.

How we reviewed this article

Edited By
Sources

All CoinLedger articles go through a rigorous review process before publication. Learn more about the CoinLedger Editorial Process.

Miles Brooks
Written by:
Miles Brooks
Director of Tax Strategy

Miles Brooks holds his Master's of Tax, is a Certified Public Accountant, and is the Director of Tax Strategy at CoinLedger.

About the Author

CoinLedger has strict sourcing guidelines for our content. Our content is based on direct interviews with tax experts, guidance from tax agencies, and articles from reputable news outlets.

KNOWLEDGE BASE

Demystify Crypto Taxes

The Ultimate Crypto Tax Guide (2024)

This guide breaks down everything you need to know about cryptocurrency taxes, from the high level tax implications to the actual crypto tax forms you need to fill out.

Crypto taxes overview
howToHandleCryptocurency
Crypto Tax Rates 2024: Complete Breakdown

Here’s how much tax you'll be paying on your income from Bitcoin, Ethereum, and other cryptocurrencies.

Crypto tax rates
howToReportCryyptoLosses
How Crypto Losses Can Reduce Your Taxes

Crypto and bitcoin losses need to be reported on your taxes. However, they can also save you money.

How crypto losses lower your taxes
ellipseellipsecalculator

Calculate Your Crypto Taxes

  • Check
    No credit card needed
  • Check
    Instant tax forms
  • Check
    No obligations
Get Started For Free
percent
ellipseellipse
Jump to
list