Income first, then gain
Staking rewards are generally income at fair market value when you gain dominion and control. That value becomes the cost basis. When the asset is later disposed of, the difference between disposal value and that basis is a separate gain or loss.
Why timing is difficult
Rewards may accrue continuously, be claimable but unclaimed, or be locked for a period. The point at which you control them determines the income date and the basis. Protocols differ, and the documentation of when control arose is what supports the position taken.
Valuation
For liquid tokens, a consistent exchange price source is adequate. For thin markets, the method matters more and needs documenting. Changing source between periods invites questions.
The record-keeping burden
A validator producing frequent small rewards can generate thousands of income events a year, each with its own basis. This is not reconstructable manually; it needs subledger software reconciled regularly.
Deductions
Costs of staking operations may be deductible depending on whether the activity rises to a trade or business, which is a facts-and-circumstances question worth deciding deliberately rather than by default.
TallyWise provides this as part of our crypto and Web3 accounting. Book a call to talk through your situation.
