Gas fees and Taxes

U.S. Taxation of Digital Assets
#1

Hello David, will Gas Fees be considered a deduction on our taxes?

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#2

This is something I’ve been trying to research too!

Whenever you see this Dave, I have two scenarios that maybe you can touch on, as it wasn’t included in the lessons.

  1. When interacting with AAVE, many of us AAVE holders needed to interact with the new protocol contract and had to spend massive fees from migrating one asset (LEND) into AAVE. This meant we needed to have pay contract approval gas fees (incur gas fee), then we needed to upgrade LEND into AAVE (Contract interaction gas fee). Both of these gas fees, are they added to the adjusted cost basis of our AAVE?

  2. My second question is when you interact with a lending protocol, we added up all of our income from staking or Liquidity providing, however, similar to the AAVE migration, we need to spend for contract approval and contract execution. How are these gas fees deducted or reported for tax purposes? I assumed that we would add these fees to cost basis and it will increase our adjusted cost basis.
    E.G: deposit into DAI SAVINGS RATE, 100dai=101USD. Gas fees spent (5USD). DAI savings rate: 5% APY.
    End of year total DAI received from DSR: 5DAI=5.05USD(Received dai at different prices throughout the year but total sum is 5.05)
    total DAI in DSR: 105=(101+5.05)= 106.5USD
    Gas fees originally incurred: 5USD
    Add to cost basis: 111.5USD
    Total income reported on 1040: 111.5USD (this is isn’t too good because youre reporting income that otherwise shouldve been deductible)
    but when you sell that dai cost basis will give you a loss because you have 105 dai and it is usally one dollar so youll receive 106USD at most. and have 5.5 capital loss (the gas fees).
    or Do you deduct the gas fees from total income received? This is complicated stuff… lolololol

Sincerely,
PuHcheKo

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