Key Takeaways:
The U.S. House of Representatives recently passed Donald Trump’s domestic policy tax and spending bill. The legislation revives an old provision that could let Bitcoin miners “wipe out” their tax bills, according to tax experts. Analysts warn there is always a risk that miners might face extra IRS scrutiny if the facility is abused.On May 22, the U.S. House of Representatives narrowly passed Donald Trump’s domestic policy tax and spending bill, reviving an old provision that could help Bitcoin miners “wipe out” their tax bills, according to tax experts.
The Bill, dubbed by the Republican President “one big, beautiful Bill,” now heads to the Senate before it can be passed into law. The legislation extends Trump’s tax cuts, passed in 2017 under the Tax Cuts and Jobs Act, which are due to expire in 2025.
It also brings back the so-called “100% bonus depreciation” clause, which allows companies to promptly deduct the full cost of capital expenditures like new mining equipment from taxable income.
Tax expert Arniel Sia said the Bill allows Bitcoin miners to write off 100% of hardware costs in the year of purchase. It can apply when a firm buys new mining equipment, such as application-specific integrated circuit (ASIC) miners.
“You could mine Bitcoin and wipe out your tax bill,” Sia wrote on X. “That’s what Trump’s anticipated tax overhaul brings back. It’s a game changer.”
Existing Internal Revenue Service (IRS) rules require firms to depreciate large equipment buys over many years. Tax deductions are spread out across an asset’s useful life, typically five years for ASIC miners.
Sia criticized the rule, noting that companies could be “stuck for years “waiting to get the full tax benefit.” But Trump’s proposed law changes this — entities, like Bitcoin miners, get to deduct the entire cost upfront.
For example, a miner spends $30,000 to buy three ASIC miners for $10,000 each. Under 100% bonus depreciation, the miner’s $30,000 mining hardware purchase becomes a $30,000 tax deduction upfront.
According to Sia, if a miner earns as little as $5,000 in revenue that year, they can report a $25,000 paper loss. Mining firms or individuals can use the faux loss “to offset income from your job, business, or investments,” he explained, stating:
“Depending on your tax bracket, that could save you $7,000 to $10,000 in taxes.”
Regulatory Pitfalls
Arniel Sia did not respond to Cryptonews‘ request for comment. But he did point out in his long thread on X that the real estate industry has used the bonus depreciation “trick for decades.”
“It’s how [Donald) Trump and many others legally paid $0 in taxes in past years,” he alleged. “Now Bitcoiners might get to use the same exact playbook, with hash power instead of houses.”
Corporate tax lawyer Antonia Eilander said Trump’s Bill could boost cash flows and optimize taxes for Bitcoin miners, “especially those making big capital investments in ASIC equipment or data center infrastructure.”
But as with all tax strategies, the devil is in the details. Eilander said while the proposed law could “potentially eliminate taxable income in the short term,” it “will not wipe out” the tax bill for Bitcoin miners, as argued by Sia.
“You can rarely entirely wipe out your tax bills,” Eilander, who is also the founder of crypto tax consultancy O2K, told Cryptonews in an interview.
She says it is a “risky gamble” for Bitcoin entrepreneurs to set up mining farms in the U.S. just so they benefit from the 100% bonus depreciation.
“Firstly, because the incentives of the ‘one big, beautiful Bill’ expire at the end of 2028, right before Trump’s term as President ends. Second, if no true economic substance is proven by the business, it could be classified as aggressive tax planning and evasion, which means the 100% bonus depreciation will be reversed.”
Are Bitcoin Miners Over-Taxed?
The IRS has cracked down on aggressive tax strategies in crypto before and, as Eilander noted, “signaled its intent to increase oversight on crypto-related tax positions, particularly novel interpretations.”
For example, a Texas man, Frank Richard Ahlgren III, was jailed for two years in December for filing a tax return that falsely underreported the capital gains he earned from selling $3.7 million in Bitcoin.
The tax agency unraveled Ahlgren’s best efforts to conceal the gains, even by using crypto mixers. Analysts say there is always a risk that BTC miners might face similar scrutiny if the bonus depreciation is abused.
The abuse can take various forms, says Eilander, including instances where miners “combine bonus depreciation with other aggressive tax positions such as inflating basis, misclassifying assets, or failing to keep company records.”
“The IRS historically has attacked deductions under the Economic Substance Doctrine and the Hobby Loss rules,” Slava Demchuk, the CEO of blockchain forensics and compliance firm AMLBot, tells Cryptonews.
He adds:
“The IRS has the authority to deny deductions for a mining activity if it is not profitable in the normal sense – [that is], if profitability is not its primary justification, but rather seeking a tax advantage.”
The IRS treats Bitcoin mining as an immediate taxable event when BTC is mined or sold. Blockchain law firm Oberheiden says the tax agency views cryptocurrency mining income as ordinary income, which is taxed at between 10% to 37%.
This is different from the way other assets in the extractive industry are treated. In gold mining, for example, revenue is recognized only upon the sale of the mined asset, at which point it becomes a taxable event.
Critics say Bitcoin’s “immediate taxation” is a challenge and disadvantage to miners, stating that the cryptocurrency’s volatility could lead to companies being over-taxed or under-taxed based on the timing of the transaction.
Tax Break Pushes Bitcoin’s Decentralization
While the Trump-inspired tax break could spur individual mining, experts fear that miners’ widespread adoption of bonus depreciation could spark a backlash from the IRS, which will likely respond with stricter guidelines.
“If more miners start using this strategy, there’s a good chance it’ll get extra scrutiny,” Michael Jerlis, the founder and CEO of Europe-based Bitcoin mining pool EMCD, told Cryptonews, warning:
“Worst case, there might be new rules, like tougher reporting or limits on how much depreciation you can claim for mining gear.”
Eilander, the O2K tax lawyer, says any policy response will likely come from “lawmakers [who are] critical of crypto or concerned about the erosion of the corporate tax base.”
And for businesses thinking of leaving the U.S. once the legislation allowing for the 100% bonus depreciation expires in 2028, they will still face what Eilander describes as “a huge blow” — exit taxes.
Companies labeled by the IRS as involved in aggressive tax planning also face similar risks, she says. Meanwhile, Sia the tax consultant, is not losing sleep over any future regulatory blowback.
“With this strategy, you can redirect money that would’ve gone to the IRS into buying an asset that generates income and accumulates Bitcoin,” he trumpets on X, formerly Twitter.
“Not only does this support the network and push decentralization forward. It gives you more sovereignty in the process.”
All this depends on whether the tax and spending Bill gets the go-ahead in the Senate, where it reportedly faces an uphill battle. Democrats have criticized bonus depreciation as a corporate giveaway.
But Trump has garnered bipartisan support for some of his crypto policies and it may likely be the case with the latest legislation.
Also, States like New Hampshire and Texas, which recently authorized Bitcoin treasury investments, may lobby for the Bill’s passage.
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