The flip side of favorable loss treatment is brutal income treatment. Under Revenue Ruling 2023-14, staking rewards are ordinary income, measured at fair market value, the moment you gain “dominion and control” over the tokens — the instant you can sell, transfer, or otherwise dispose of them. You are taxed on paper rewards you may never have touched. (A taxpayer challenge to that timing, the Jarrett litigation, was mooted before it could set precedent; the ruling stands.) Mining rewards are likewise ordinary income on receipt, and under Revenue Ruling 2019-24 so are tokens from a hard fork or airdrop. The amount taken into income becomes your basis, so a later sale produces a second, separate capital gain or loss.
For a high earner the drag is mathematically punishing. Take a reader in Santa Clara at the top of every applicable schedule:
More than half of every staking reward is gone before it is ever sold — and unlike a qualified dividend or a long-term gain, ordinary-income yield gets no preferential rate. Holding a yield-bearing digital asset in a taxable account at that bracket is indefensible: the asset throws off a fully taxed coupon every block.