Is the conversion of ETH -> rETH (and back) a Capital Gains tax event (in America)?

I’ve seen conflicting _opinions_ on what’s going to happen when it comes to staking with RocketPool, and for anyone with a low cost-basis (or anyone bullish on the price of ETH in the future), triggering a Capital Gains tax event when depositing and withdrawing renders the whole system… not so great for Americans!

The way I see it right now (and I have only a slight idea of what I’m talking about, so please don’t murder me):

1. ETH -> rETH deposit = capital gains tax event (50% for short term!)
2. staked ETH rewards accrual paid in rETH = income tax event
3. rETH -> ETH withdrawal = capital gains tax event
4. ETH -> fiat (or whatever) = capital gains tax event

Interested to hear what you (plural) think about this situation.

What do you think?

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  1. This is currently heavily heavily debated. Obviously it varies from country to country but US, UK and Aus all seem to be very similar and the way you have explained it is how the tax man at face values see’s things.

    We had a small discussion here for the other side of the coin but it’s opinions so not really set in stone.

  2. When the rules aren’t clear and it’s up to you to report what’s going on, you might as well just make a best guess and not waste any more time on it.

    Either you’ll get audited and have a chance to explain your thinking, or you won’t and nothing will happen.

    At this point, every tax attorney you ask would probably have a slightly different opinion, and there is no way to know which is correct anyway.

    (I don’t mean to trivialize your question. Just giving some advice!)

  3. Yep I think you’ve nailed all those taxable events. If it’s any consolation it’s the same in many other jurisdictions. Ah well at least it pays for useful stuff like schools, hospitals in some countries, police, roads. One thing is for sure the governments don’t want to miss out on their share of all this crypto money. It does make me a bit less enthusiastic about Rocketpool though

  4. I could see a reasonable case being built on the premise the rETH simply represents the ETH you staked plus the staking interest. It would be left up to the courts but would establish an important body of case law.

  5. I’m not in America, but I’ve asked my tax advisor the same question. The answer is that nobody knows right now, not even the tax authorities themselves. I imagine the situation is similar in the America.

    The only way to be *certain* right now is to apply for an individual tax ruling.

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