Defi And Taxes – Lending
The taxpayer must identify whether they are a hobby or (self-employed) business lender for tax reporting purposes.
To report ordinary income from lending as a hobby, the taxpayer will report the amount received as other income (Line 21) on Schedule 1- Additional Income and Adjustments to Income.
If the taxpayer is deemed to be engaged in a trade or business for which cryptocurrency lending generates trade or business income, the taxpayer must report any income or rewards received as self-employment income. Expenses related to the lending business activity like office, operating and other expenses may be deducted for tax purposes. Business lenders are also subject to self-employment tax at a rate of 15.3%. To report business income from lending, the taxpayer will report the amount received as self-employment income and any related lending business expenses on various forms.
For detailed information on tax reporting of lending and applicable forms, please check our full article DeFi Taxes – Lending and Borrowing.