Staking: how to deduct permanent loss when receiving from pool?

Tax Questions
#1

The Koinly article about staking describes what to do when you receive from pool more than what you have put there.
When you have sent a pair to pool, say x and y coins, and now you are receiving it back from the pool: it is clear what to do with the x coin that you now have extra, but my question is: In this situation the y coin amount has decreased, how to, or can it be deducted in taxes?

FAQ

How to handle reward payments that are received from the pool along with initial investment?

This is slightly more involved let’s say you sent 10 ETH into a pool and received 10.5 ETH back from the pool. If you were to mark the first transaction as Sent to Pool and second one as Received from Pool then you would see a missing purchase history error for the 0.50 ETH. You can resolve this by creating a manual Reward transaction in the Pool wallet right before the “received from pool” txn. We are working on making this easier to handle.

#2

I think you should do the opposite of what Koinly suggests for the receipt of additional coins from the pool. Go into your pool wallet and add a manual Send transaction for the missing coins so that you burn them. You will have a capital loss for these coins. You can add the Cost label to the transaction if you want to deduct the value from Income rather than take a capital loss.

2 Likes
#3

Thank Mark. Yes I think this is the way to go. Add manual send transaction to cover the loss. Only problem is I don’t know should it be deducted in my country by capital loss or income. I called tax administration but they didn’t know either. But yeah, I quess I will deduct it to capital loss…

#4

Hi @El_Tonno,

Our instructions when considering staking and the “sent/received from pool” labels are geared towards the majority of staking like DOT, ETH or ADA where losses aren’t generally expected to occur.

If your “staking” involves a high and fairly frequent risk of loss, then generally in Koinly, it would fall under one of those categories:

  1. Providing liquidity (check in depth details here Liquidity in/out | Koinly Help Center). This generates capital losses and gains, unless you toggle them off in your settings.

  2. A trade to a staking token. This generally involves generating gains and losses like any other trade, unless you use the “swap” label.

As an example, providing liquidity for defi options can generally be considered a trade with the options platform LP token. This allows to generate a loss when withdrawing after providing liquidity to profitable options contracts.

There is definitely going to be nuances however depending on your local tax rules, and getting some pro-tax advice is always good (we have a few picks here Cryptocurrency Tax Accountants | Koinly). If you want a more in depth look, do not hesitate to reach out to us by email [email protected] , we will be more than happy to help you out :slight_smile:

Cheers!

#5

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