Tax impact of the Ethereum Shanghai and Capella Upgrades

Disclaimer:

Coinbase doesn’t provide tax advice. Taxable income is accrued in dollars but ETH staking and cbETH are held in crypto with changing prices. You may want to plan ahead to be prepared for your 2023 taxes.

The Shanghai and Capella Upgrades, collectively known as Shapella, enables you to unstake your staked ETH for the first time since ETH staking was introduced in December 2020. When fulfillment of unstaking requests begins, Coinbase will consider rewards earned from staking ETH and holding cbETH as taxable income (subject to future guidance from the IRS). Before the enablement of unstaking, staking rewards was not considered taxable since you were unable to sell or realize earned rewards.

How ETH staking and hold cbETH is taxed

Subject to future guidance from the IRS, your ETH staking rewards and cbETH rewards are considered income.

You will see staked ETH or cbETH reported as income on your end of year reports as of the day when unstaking is first supported by Coinbase. Although unstaking is enabled by the Shapella Upgrade, Coinbase will need additional time to enable unstaking on our platform. This will follow after Ethereum's Shapella Upgrade is complete.


Taxed

When

How

Consider

ETH staking

One-time taxable event

On the date when fulfillment of unstaking requests begins

Summed up and reported as income, using the market price of ETH as of this date

This could be a significant amount of rewards that will be recognized as income

Holding cbETH

One-time taxable event

On the date when fulfillment of unstaking requests begins

Summed up and reported as income using the market price of ETH and conversion rate of cbETH to ETH as of this date


This only applies if you hold your cbETH in your Coinbase account at the time of the upgrade

Moving forward, ETH staking rewards and cbETH earnings will be considered income as they’re paid out. Additionally, wrapping and unwrapping cbETH generally are not considered taxable events, and selling cbETH is taxed as capital gain or loss.

Tax impact of staked ETH that is wrapped and held and cbETH

 This breaks down into two different pieces of taxable income:

  • Staked ETH rewards, based on however long you had staked ETH

  • cbETH income, based on however long you had cbETH

Meaning:

  • Rewards earned from your staked ETH are taxable as income as of the day when unstaking is first supported by Coinbase, for as long as you held your staked ETH even if you do not unstake your ETH on this day. 

As soon as you wrapped your staked ETH into cbETH, that cbETH incurs taxable income when the underlying rewards become available for unstaking

Expectations for a 1099

Coinbase issues 1099-MISCs for when all miscellaneous income earned is at least $600. For 2023, if your income earned from staked ETH rewards and holding cbETH along with any other taxable income exceeds $600, you’ll receive a 1099-MISC. 

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