The IRS Just Cleared the Way for Crypto Funds to Earn Staking Rewards. Here’s What It Means for Your Taxes (Rev. Proc. 2026-20)

Crypto funds have spent years holding proof-of-stake coins while leaving the networks’ built-in yield untouched. That changed on October 6, 2026, when the IRS released Revenue Procedure 2026-20. It’s a safe harbor that lets qualifying crypto trusts stake their coins without losing the tax status their structure depends on.

For investors, that means a new stream of income. It also means a new tax bill. The tax code treats staking rewards as your income as soon as the fund earns them, taxed at ordinary rates, whether or not you ever sell a share.

What Rev. Proc. 2026-20 Lets Crypto Funds Do

Most spot crypto funds are set up as grantor trusts. Under 26 U.S.C. § 671, the owner of a grantor trust includes the trust’s income, deductions, and credits on their own return. So the tax lands on you, not on the fund.

To keep that pass-through treatment, the trust also has to qualify as an investment trust. Treasury regulations disqualify any trust that has a “power under the trust agreement to vary the investment of the certificate holders”, a rule that goes back to a 1941 appeals court case. Staking looked a lot like active management, so fund sponsors steered clear of it.

The new procedure replaces Rev. Proc. 2025-31, the original safe harbor issued November 10, 2025. It applies only to permissionless networks that use proof-of-stake. A trust has to meet 14 requirements to qualify. Among them: its shares must trade on a national exchange, it must hold a single type of digital asset, and its coins must sit with qualified custodians.

Rewards Must Reach You Within 60 Days of Quarter End

The rules don’t let a fund sit on its rewards. The only new assets a trust can receive from staking are additional units of the same digital asset. After trust expenses, it has to distribute those rewards in kind, sell them and pay out the cash, or do some of each. The deadline is no more than 60 days after the end of the calendar quarter in which the trust gains control of the rewards.

Existing trusts get six months after October 6, 2026 to amend their trust agreements to allow staking without putting their tax status at risk.

How a $50,000 Staking Fund Position Gets Taxed

The IRS set the baseline in Revenue Ruling 2023-14. Staking rewards count as gross income in the taxable year the taxpayer acquires dominion and control, meaning the point when you can sell or transfer them. IRS Publication 550 lists “the receipt of new digital assets as a result of mining and staking activities” as a digital asset transaction.

Here’s a made-up example. A 67-year-old married couple files jointly for 2026 and holds $50,000 of a staking fund for Ethereum (CRYPTO:ETH) in a taxable brokerage account. Assume the fund’s rewards come to 2.5% a year after expenses. That yield is hypothetical, picked to keep the math simple.

For 2026, joint filers pay 12% on taxable income over $24,800 and 22% on income over $100,800. Brackets fill from the bottom up, so each reward dollar pays the rate of the bracket it lands in. State income tax comes on top and varies by state.

Falling Coin Prices Can Leave You Taxed on Value You Lost

The taxable amount is fixed at what the coin is worth when the trust gets it. By the time you sell, it may be worth less. Ethereum fell 11.64% in the month ending October 21, 2026, to $2,452.45. Solana (CRYPTO:SOL) dropped 10.24% over the same period.

Now apply that drop to the couple’s rewards. The $1,250 they report as income would be worth about $1,104.50 in coin. They still owe ordinary income tax on the full $1,250. Their cost basis in those reward units generally is the amount they reported, so they only get to claim the difference as a capital loss once they sell.

Three Moves to Make Before You Buy a Staking Fund

1. Hold it in a retirement account. In a traditional IRA, rewards grow untaxed until you withdraw them. In a Roth, qualified withdrawals come out tax-free. That makes an IRA the most tax-efficient place for a staking fund.
2. Report every distribution. Ordinary income from digital assets that isn’t reported anywhere else on your return goes on Schedule 1, line 8v. When you sell, you report the gain or loss on Form 8949 and Schedule D.
3. Check where the income lands on your return. For retirees, extra reward income can make more Social Security taxable and raise the income figure Medicare uses two years later to set IRMAA premium surcharges (one of nine IRS rules that quietly drain retirement accounts, all charted in our free tax trap map).

The mistake people make most often is assuming reward units paid in kind aren’t taxable because no cash showed up in the account. Over the next six months, watch which funds amend their trust agreements before the window closes. If you’re considering whether to hold one in a taxable account or an IRA, that’s worth running through with a CPA.

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