How it works
Revenue Ruling 2023-14 confirmed that staking rewards are ordinary income in the year you gain dominion and control, meaning the ability to sell, transfer, or exchange them. Their fair market value on that date is your income and becomes your cost basis. When you later sell the rewarded tokens, you have a second event: capital gain or loss measured against that basis. Exchanges often report staking income on Form 1099-MISC.
Why it matters
Rewards create taxable income even if you never sell, and the timing question (receipt versus unlock) decides which year the income belongs to. Locked rewards you cannot access may not be income until they unlock, which is a facts-based position worth documenting.
Example
You receive 10 ATOM in staking rewards when ATOM is 8 dollars. You report 80 dollars of ordinary income. Six months later you sell the 10 ATOM for 120 dollars, producing a 40 dollar short-term capital gain.
Related: Revenue Ruling 2023-14, dominion and control, liquid staking. Read more: crypto staking taxes.
