The IRS treats unstaking cryptocurrency as a non-taxable wallet transfer under current guidance, while staking rewards are taxable as ordinary income the moment taxpayers gain dominion and control over awarded tokens per Revenue Ruling 2023-14. The distinction matters because cryptocurrency is classified as property under IRS Notice 2014-21, making disposal events like sales or swaps subject to capital gains tax. Starting in 2026, Form 1099-DA requires centralized U.S. exchanges to report digital asset transactions including staking activity, giving the IRS transaction-level visibility it previously lacked under the Infrastructure Investment and Jobs Act of 2021.
IRS Treats Unstaking as Non-Taxable Wallet Transfer
Depositing and withdrawing cryptocurrency from a staking pool is treated similarly to transferring crypto between wallets under IRS property rules, according to CoinLedger's staking tax guide. Neither action changes asset ownership, and neither constitutes a disposal under IRS definitions. A taxable disposal occurs when cryptocurrency is sold, traded, or spent—moving tokens from a staking contract back to a wallet is none of those actions. The logic follows from IRS property classification: moving stock certificates between brokerage accounts triggers no tax, and the same principle applies to cryptocurrency staking deposits and withdrawals. FinanceFeeds reported that Form 1099-DA now provides the IRS with greater visibility into crypto activity, making accurate recordkeeping more important.
DeFi Liquid Staking Swaps May Trigger Capital Gains Tax
The exception occurs with DeFi liquid staking protocols that use crypto-to-crypto swaps as part of the unstaking process. When a user stakes ETH on Lido and receives stETH, some tax practitioners treat that exchange as a taxable disposal, CoinLedger noted. The same logic applies in reverse: converting stETH back to ETH during unstaking could constitute a separate taxable event. In one example from the source, a user buys $700 of ETH which rises to $850, stakes on Lido and receives stETH, potentially incurring a $150 capital gain under the swap interpretation. When the user later converts stETH back to ETH during unstaking, a second capital gains calculation applies based on the stETH cost basis and the ETH value at conversion. The IRS has not issued definitive guidance on whether minting and redeeming liquid staking tokens constitute a taxable swap, according to Coincub's 2026 staking tax analysis. The critical variable is whether the unstaking process involves receiving a different token than the one originally deposited—native staking where ETH is deposited and the same ETH is received back remains straightforward, while liquid staking derivative tokens raise legally unresolved questions.
Revenue Ruling 2023-14 Establishes Staking Rewards as Ordinary Income
Staking rewards earned during the staking period are taxable as ordinary income under Revenue Ruling 2023-14, which established that rewards are included in gross income for the tax year in which the taxpayer acquires dominion and control, BDO confirmed. Dominion and control typically means the first moment a taxpayer can sell, exchange, or transfer the reward tokens, TokenTax explained. If rewards are locked, income recognition is generally delayed until the lockup expires. Each reward creates its own cost basis lot—when those tokens are later sold, a second tax event occurs with capital gains calculated from the income value at receipt to the sale price.
Form 1099-DA Reporting Requirements Effective Starting in 2026
Starting in 2026, IRS Form 1099-DA requires centralized exchanges to report digital asset transactions including staking activity, Koinly's crypto tax guide noted. This gives the IRS transaction-level visibility into crypto activity comparable to what it maintains for stock trades. The Infrastructure Investment and Jobs Act of 2021 mandated these broker reporting rules, which now apply to centralized U.S. exchanges. DeFi protocol reporting requirements remain under development with proposed regulations still advancing through the rulemaking process. The IRS has not provided a safe harbor for the treatment of liquid staking tokens.
FAQ
Is unstaking crypto a taxable event?
Generally no. Moving cryptocurrency from a staking pool back to a wallet is treated like a wallet-to-wallet transfer and does not constitute a disposal event under current IRS guidance.
When does unstaking trigger capital gains tax?
When the unstaking process involves a crypto-to-crypto swap, such as converting stETH back to ETH on a liquid staking protocol like Lido, under some tax practitioner interpretations.
Are staking rewards taxed as income?
Yes. The IRS treats staking rewards as ordinary income at their fair market value the moment the taxpayer gains dominion and control over the awarded tokens per Revenue Ruling 2023-14.
