Do crypto-backed loans count as a taxable event in the U.S.?

You have just discovered crypto-backed loans as an appealing alternative to selling your assets when you need liquidity. But there are still things to consider, and taxes are near the top of the list.

In the US, borrowing itself is generally not treated as a sale, so at face value, it does not trigger a tax event. But the full picture has more moving parts, from how the loan is structured to how it ends, and some of them can carry tax consequences of their own. This article explains the general principles.

This article is for general information only and is not tax advice. Please consult a qualified tax professional regarding your specific circumstances.

How the IRS treats digital assets

The IRS classifies digital assets as property, not currency. That means the usual property rules apply: when you sell, exchange, or spend a digital asset, you have made a “disposal.” The difference between what you receive and your cost basis (generally what you paid, plus certain costs) is a capital gain or loss.

How a gain is taxed depends on how long the asset was held before it was sold. Assets held for a year or less typically produce short-term gains, taxed at ordinary income rates. Assets held longer typically produce long-term gains, taxed at lower rates.

A taxable event, then, is usually triggered by a disposal. Simply holding an asset that has gone up in value is not one, however large the unrealized gain.

Why borrowing is treated differently from selling

When you take out a loan, you receive funds, but you also take on an obligation to repay them. Because the funds are borrowed rather than earned, loan proceeds are generally not treated as income. And if you have pledged digital assets as collateral without giving up ownership of them, that pledge is generally not treated as a sale.

This is the logic behind the common claim that crypto-backed loans are not taxable. It is a reasonable starting point, but the final answer depends on the details. The IRS has not issued guidance written specifically for crypto-backed loans, so most of the analysis rests on how general tax principles apply to the facts of each arrangement.

Where the picture gets more complicated

Loan structure. Not every arrangement labeled a “loan” is treated as one. If the agreement transfers ownership of your assets to the lender, or lets the lender sell or re-use them, a tax adviser may want to examine whether the transfer looks more like a sale.

Repayment method. Repaying a loan with funds from a bank account is usually not a disposal of any digital asset. Repaying with crypto or stablecoins is different. Sending an asset that has appreciated since you acquired it can be a disposal, and it may produce a gain or loss, even if it is a small one, according to the IRS.

Forced sales. If the value of your collateral falls, a lender may sell some or all of it to bring the loan back into balance. The IRS states that such a sale is treated as a disposal. It can realize a gain or loss even though you never chose to sell, and even though the proceeds went straight to the lender rather than to you. How close a loan sits to the lender’s thresholds, therefore, matters for tax as well as for risk.

Canceled obligations. If a lender forgives part of a loan, the canceled amount can be treated as income in some circumstances, subject to exceptions, according to the IRS guidelines.

What about the interest?

Interest on a crypto-backed loan is not automatically deductible. Whether you can deduct it depends on how the borrowed funds were used. Interest on funds used for personal spending is generally not deductible. Interest on funds used to buy investments may be deductible within limits, usually capped by your net investment income. Funds used in a business follow different rules again. The IRS applies tracing rules to determine how borrowed funds were used, so keeping clear records of where the funds went is important.

Reporting and record-keeping

Starting with the 2025 tax year, US brokers report digital asset sale proceeds to the IRS on Form 1099-DA. From 2026, brokers will also report cost basis for certain assets acquired and held in the same account. But a form from one platform does not capture everything. It only reflects what that platform saw, and it does not replace your own obligation to report your transactions accurately.

For anyone borrowing against digital assets, it is sensible to keep the following on record:

• The loan agreement and its terms
• A record of the date and value of the funds received
• Your acquisition dates and cost basis for the collateral
• Records of every collateral transfer, added collateral, and repayment
• Interest statements
• Any statement from a forced sale or partial repayment

Reconciling these against your wallet and bank records makes a conversation with a tax professional much quicker.

A few questions to ask before borrowing

Tax treatment is only one input into a borrowing decision. It helps to ask:

• What exactly happens to my assets once they are pledged, and do I keep ownership?
• How will I repay, and does that method involve selling or sending digital assets?
• At what point does the lender sell collateral, and how would that be reported?
• What is the total cost of borrowing, including interest and fees?
• Have I confirmed the tax treatment with a qualified professional, rather than assuming it?

A loan that defers a tax bill does not remove it. If the collateral is eventually sold, a gain may still need to be reported, and the loan carries its own costs and risks.

How a Nexo Credit Line fits in

The Nexo Credit Line is one example of how this category of lending products works in practice. It lets you access liquidity without selling your digital assets. You can borrow stablecoins or cash, while you repay on your own schedule.

It also illustrates several points from this article. Assets in your Credit Wallet serve as collateral. If your Loan-to-Value (LTV) ratio reaches 83.33%, partial automatic repayments sell only the amount of collateral needed to bring it back down, and a sale like that may have tax consequences. You can manage your LTV ratio before that point by adding collateral or repaying part of the loan. Additionally, Automatic Collateral Transfer can move assets from your Savings Wallet to your Credit Wallet when your LTV ratio rises.

How you repay, and with what, also affects your records. Repaying from a bank account leaves a bank record. Repaying with digital assets can create a transaction you may need to report, so the date, value, and cost basis of any asset used are worth noting.

Credit Line availability, rates, and terms depend on your jurisdiction, Loyalty Tier, and LTV ratio, and may change. Review the full terms on the Nexo platform before borrowing.

The bottom line

Taking out a crypto-backed loan is generally not treated as a sale of your collateral, but what happens around the loan can be. Repaying with digital assets, a forced sale, or an unusual loan structure can each create a reportable event, and interest deductions are not automatic. Understand the terms, keep clean records, and speak with a qualified tax professional before relying on any assumption.

Borrowing against digital assets involves risk, including liquidation risk due to market volatility. Clients are responsible for monitoring their Loan-to-Value ratio. Liquidation or automatic repayments may occur, including without prior notice. Notices and tools are best efforts and not guaranteed. This information does not constitute tax advice. Please consult a qualified tax professional regarding your specific circumstances.

These materials are accessible globally, and the availability of this information does not constitute access to the services described, which services may not be available in certain jurisdictions. These materials are for general information purposes only and not intended as financial, legal, tax, or investment advice, offer, solicitation, recommendation, or endorsement to use any of the Nexo Services and are not personalized, or in any way tailored to reflect particular investment objectives, financial situation or needs. Yield and interest rates are not guaranteed, are subject to change, and may vary by eligibility, selected term, and wealth tier. References to Yield are product names and do not represent rates of return or performance. Nexo products are not bank deposits and are not insured by the FDIC or SIPC. Digital assets are subject to a high degree of risk, including but not limited to volatile market price dynamics, regulatory changes, and technological advancements. The past performance of digital assets is not a reliable indicator of future results. Digital assets are not money or legal tender, are not backed by the government or by a central bank, and most do not have any underlying assets, revenue stream, or other source of value. Independent judgment based on personal circumstances should be exercised, and consultation with a qualified professional is recommended before making any decision.

Services are provided by Bakkt Crypto Solutions, LLC. Digital assets may be held or serviced by third-party custodians, exchanges, lenders, or other service providers. Your ability to access or recover assets depends on the provider’s operational resilience and financial condition. If a provider becomes insolvent or experiences an operational disruption, you may experience delays in access to assets and could lose some or all of your assets. For more information, visit Bakkt Disclosures.