Can I deduct electricity costs for Bitcoin mining?

Yes, you can deduct electricity attributable to mining operations. This requires metering or reasonable allocation methods. Other deductible expenses include equipment depreciation, cooling systems, facility costs, and pool fees.

What makes Texas the Bitcoin mining capital?

Texas has approximately 2,600 MW of mining power consumption, abundant energy, deregulated ERCOT power markets, no state income tax, HB 591 allowing flared gas use without severance tax, and 10-year tax abatements for mining operations.

Texas Crypto Tax Services

Q: Does Texas tax cryptocurrency gains?

No, Texas does not impose state income tax on cryptocurrency gains. Texas's constitution prohibits a state income tax without voter approval. Federal income tax still applies with rates up to 40.8% for short-term gains.

Q: When do I owe tax on Bitcoin I mined?

You owe ordinary income tax when Bitcoin is received (when the block reward hits your wallet), based on fair market value at that moment. Self-employment tax of 15.3% also applies. Later sales create separate capital gain/loss events.

Introduction to Crypto Taxation

Texas offers cryptocurrency investors and miners a favorable tax environment with no state income tax on crypto gains. This guide explains Texas crypto tax rules and federal compliance requirements for investors and mining operations. The IRS treats cryptocurrency as property, meaning most transactions are subject to federal capital gains tax regardless of your state of residence.

Understanding Texas crypto tax rules is essential for compliance and optimizing your tax position. While Texas imposes no state-level income tax, federal rules govern the taxation of cryptocurrency transactions, and mining operations face unique tax considerations.

Texas Crypto Tax Rules: Quick Summary

No State Income Tax: Texas does not impose a state income tax on individuals, so crypto gains are not taxed at the state level.
Federal Tax Applies: All federal tax rules apply to Texas residents, including capital gains tax on crypto sales and exchanges.
Mining Income Is Ordinary Income: Crypto received from mining is taxed as ordinary income at its fair market value when received.
2025 Compliance Requirements: New IRS rules require wallet-by-wallet cost basis tracking (Rev. Proc. 2024-28) and Form 1099-DA reporting for centralized exchanges.
Franchise Tax for Businesses: Texas imposes a franchise tax that may apply to crypto-related businesses.

Understanding Capital Gains Tax Rates

Capital gains tax rates determine your overall tax obligations for crypto investments. The tax treatment depends on your holding period.

The Bitcoin Mining Capital: No State Income Tax in the Lone Star State

Texas has emerged as the global capital for Bitcoin mining, with cryptocurrency mining consuming approximately 2,600 MW of power—equivalent to Austin's energy usage. The state's advantages include abundant energy, deregulated power markets through ERCOT (Electric Reliability Council of Texas), and a pro-business regulatory stance.

Texas Mining Legislation

HB 591 (2024): Allows miners to convert flared gas to electricity without paying the 7.5% severance tax
10-Year Tax Abatements: Available for mining operations meeting certain criteria
Strategic Bitcoin Reserve: In December 2024, Representative Giovanni Capriglione introduced legislation to establish a Texas Strategic Bitcoin Reserve

At Monaco CPA, we provide remote crypto tax services to Texas residents and mining operations throughout the state. While Texas's lack of state income tax eliminates state obligations, federal compliance is essential—particularly for mining operations with unique tax considerations.

What Texas Residents Still Owe

No state income tax doesn't mean no taxes. Texas crypto investors are subject to federal income tax and compliance requirements.

Federal Income Tax

Short-term capital gains (held ≤1 year): Taxed at ordinary income rates up to 37%
Long-term capital gains (held >1 year): Taxed at 0%, 15%, or 20% depending on income
Net Investment Income Tax: Additional 3.8% on investment income for high earners
Maximum combined federal rate: 40.8% (short-term) or 23.8% (long-term)

Mining Income Is Ordinary Income

Crypto received from mining is taxed as ordinary income at fair market value when received
Self-employment tax (15.3%) applies to mining income
When mined crypto is later sold, a separate capital gain/loss event occurs

Federal Compliance Requirements (2025)

Rev. Proc. 2024-28: Wallet-by-wallet cost basis tracking effective January 1, 2025
Form 1099-DA: Centralized exchanges report gross proceeds for 2025 transactions; cost basis reporting begins January 1, 2026
DeFi Broker Rule Repealed: H.J.Res.25 signed April 10, 2025 exempts DeFi platforms from 1099-DA reporting
Form 8949: Required for reporting all crypto sales and exchanges

Texas Franchise Tax

The Texas franchise tax applies to certain business entities. Mining operations structured as LLCs or corporations may be subject to this tax based on their Texas revenue. The franchise tax rate ranges from 0.331% to 0.75% depending on business type.

Bitcoin Mining Tax Considerations

Bitcoin mining in Texas creates specific tax obligations that differ from simple buy-and-hold investing.

When Mining Income Is Taxed

Mining income is recognized when the block reward hits your wallet, not when you sell. The fair market value at that moment determines your ordinary income. When you later sell the mined crypto, you have a separate capital gain/loss event based on the difference between sale price and the fair market value at mining receipt.

Deductible Mining Expenses

Equipment costs: Mining rigs and hardware (depreciated over useful life)
Electricity: Power costs directly attributable to mining operations
Cooling systems: HVAC and cooling equipment for mining facilities
Facility costs: Rent, property taxes, and maintenance for mining locations
Pool fees: Fees paid to mining pools
Professional services: Legal, accounting, and consulting fees

Home Mining Considerations

If you mine at home, you may deduct the portion of electricity attributable to mining operations. This requires metering or reasonable allocation methods. Maintain detailed records of your mining setup, equipment costs, and electricity usage.

Strategies to Minimize Tax Liability

Crypto investors and miners have several strategies available to reduce their tax burden.

Hold for Long-Term Gains

Hold cryptocurrency for more than a year to qualify for long-term capital gains rates (0%, 15%, or 20%) rather than short-term rates (up to 37%).

Tax-Loss Harvesting

Sell digital assets that have declined in value to offset gains from other investments. The wash sale rule does not currently apply to cryptocurrency, allowing immediate repurchase after selling at a loss. Note: The PARITY Act introduced in December 2025 proposes extending wash sale rules to crypto, but this has not been enacted.

Offset Capital Gains

Use capital losses from cryptocurrency transactions to offset capital gains. If total capital losses exceed gains, you can deduct up to $3,000 per year against ordinary income and carry forward the remainder indefinitely.

Donate Cryptocurrency

Donating appreciated crypto assets to qualified charities provides a tax deduction for the fair market value while avoiding capital gains tax on the appreciation.

Entity Structure for Mining

Mining operations may benefit from LLC or S-Corp election to optimize self-employment tax treatment. An S-Corp election can help avoid some self-employment tax on mining profits. We can analyze your specific situation to determine the optimal structure.

Services for Texas Crypto Investors and Miners

Federal Tax Return Preparation: Complete Form 1040 with Form 8949 and Schedule D for all crypto activity
Mining Income Reporting: Proper recognition of mining income as ordinary income with expense deductions
Transaction Reconciliation: Rev. Proc. 2024-28 compliant wallet-by-wallet tracking
Form 1099-DA Matching: Reconciling exchange-reported data to prevent IRS notices
Tax-Loss Harvesting: Strategic loss realization (wash sale rules do not currently apply)
Mining Entity Structuring: LLC and S-Corp election analysis for mining operations
Equipment Depreciation: Proper depreciation of mining hardware and infrastructure
IRS Audit Defense: Representation before the IRS if needed
Texas Franchise Tax: Filing for crypto-related business entities
Estimated Tax Planning: Quarterly federal projections to avoid underpayment penalties

Areas We Serve in Texas

We serve Texas crypto investors and mining operations statewide through our remote service model:

Austin Metro: Austin, Round Rock, Cedar Park, San Marcos
Houston Area: Houston, The Woodlands, Sugar Land, Katy
Dallas-Fort Worth: Dallas, Fort Worth, Plano, Frisco, Arlington
San Antonio: San Antonio, New Braunfels
West Texas Mining Region: Midland, Odessa, and industrial mining facilities throughout West Texas

All services delivered via secure portal and video consultation—no office visit required.

Frequently Asked Questions

When do I owe tax on Bitcoin I mined?

You owe ordinary income tax when the Bitcoin is received (when the block reward hits your wallet), based on fair market value at that moment. This is true regardless of whether you sell or hold. When you later sell, you have a separate capital gain/loss event.

How much tax will I owe on my crypto gains?

The amount depends on your holding period (short-term vs. long-term) and income level. Texas has no state income tax, but federal capital gains tax still applies. Long-term gains (held over one year) are taxed at 0%, 15%, or 20%. Short-term gains are taxed at ordinary income rates up to 37%.

Are crypto purchases subject to state sales tax in Texas?

While Texas does not tax cryptocurrency itself as tangible personal property, purchases of goods or services made with crypto are subject to state sales tax. The payment method (crypto or cash) does not change the sales tax obligation on the underlying purchase.

I moved from California to Texas. When can I sell my crypto without California tax?

After you've properly established Texas residency. Gains realized while you were a California resident are taxable by California regardless of where you live when you file. California aggressively audits departing high-income residents—document your move thoroughly before executing major sales.

Can I deduct my home electricity costs for mining?

You can deduct the portion of electricity attributable to mining operations. This requires metering or reasonable allocation methods. Keep detailed records of your mining setup and electricity usage.

Is Texas's no-income-tax status at risk?

Texas's constitution prohibits a state income tax without voter approval. Given Texas's political environment, a state income tax is extremely unlikely in the foreseeable future.

Should I form an LLC for my mining operation?

An LLC provides liability protection and potentially better tax treatment through an S-Corp election (reducing some self-employment tax). Whether this makes sense depends on your operation's scale and profitability. We can analyze your specific situation.

What are the new IRS requirements for 2025?

Rev. Proc. 2024-28 requires wallet-by-wallet cost basis tracking effective January 1, 2025. Form 1099-DA reporting began for gross proceeds, with cost basis reporting starting January 1, 2026. The DeFi broker rule was repealed in April 2025.

Get Expert Help with Texas Crypto Taxes

Texas's no-income-tax status is a significant advantage, but federal compliance is essential—especially for mining operations with unique tax treatment. Let's discuss your situation and ensure proper compliance.

Schedule a Consultation

Phone: (862) 320-9554
Email: Greg@MonacoCPA.CPA