Are Cryptocurrency Loans Taxable?

Forbes reports, “Cryptocurrency lending and borrowing have become popular thanks to the rise of stablecoins and DeFi platforms. In the fiat world, borrowing and lending dollars do not typically result in any taxable events. However, borrowing and lending using cryptocurrencies like bitcoin and ether could result in taxable income because cryptocurrencies are treated as property by the IRS.

“‘Before we dive into analyzing crypto loans, it is important to understand two key ingredients that make fiat loans non-taxable: fungibility of USD & return of the same exact collateral at loam settlement.

“Government issued currency like USD is considered fungible. This means every dollar bill is equal, identical, and interchangeable for any other dollar bill. Since USD is fungible, you are deemed to be paying back the exact dollar bills you borrowed at the loan initiation. This is why receiving loan proceeds from a personal, credit card or student loan and/or repaying the loan in USD are tax neutral.

“In the case of property-backed fiat loans (car title loans & equipment loans), as long as the lender returns the same exact collateral borrower deposited at the loan initiation, there is no tax implication. This is in fact the case with almost all fiat asset-backed loans. For example, if you get a $5,000 title loan after collateralizing your 2005 Honda Civic, at loan repayment, the lender will give back your same exact car. Receiving anything other than your exact car could trigger a taxable event. 

“Technically speaking, crypto loans fail to meet the fungibility and return of the exact same collateral standards which shield loans from taxation as mentioned above…”

Read the full story on Forbes.