Depreciation of mining machines has tax and accounting differences, with varying rules across countries, and careful financial and tax handling in conjunction with policies is necessary.

Written by: FinTax

For the same ASIC miner, on financial statements, this cost may need to be depreciated gradually over two to three years, but on the U.S. federal tax return, its qualifying tax basis may be fully deducted in the first year.

On July 4, 2025, H.R.1 became Public Law 119-21, Section 70301 amended IRC §168(k), restoring the 100% additional first-year depreciation deduction for qualifying assets as a permanent rule. The IRS further clarified in Notice 2026-11 that this rule generally applies to qualifying assets acquired and placed in service after January 19, 2025.

However, 100% bonus depreciation does not mean that all costs of mining machines can be fully deducted in the year of purchase; actual tax treatment still depends on asset classification, timing of acquisition, and when they are put into use.

1. Characteristics of Depreciation for Mining Equipment

ASIC miners used for self-mining that meet the recognition criteria of IAS 16 are typically capitalized by listed mining companies as mining equipment within property, plant, and equipment (PPE) and depreciated over their expected useful life.

IAS 16 requires that the depreciable amount be systematically allocated over the asset's useful life. When determining the useful life, considerations include expected usage, physical wear and tear, technological or commercial obsolescence, and legal or similar restrictions. The asset's useful life is based on its expected utility to the enterprise, and may therefore be shorter than the economic life of the equipment itself; depreciation methods must be reviewed at the end of each financial year, treated as a change in accounting estimate when significant changes occur in the pattern of expected economic benefits consumed.

However, for mining machines, just because the equipment is still operational does not mean it is economically reasonable to continue operations. With new generations of ASIC improving computational power and energy efficiency, older machines need lower electricity prices to maintain marginal returns; increases in overall network computational power and mining difficulty will also lower the expected output corresponding to unit computational power.

The actual useful life of mining machines depends more on their ability to continuously generate economically valuable computational power at what cost. A generation of equipment may technically operate for five years, but if the enterprise expects that after three years its energy efficiency will no longer be sufficient to sustain economic operation at its electricity price level, then a three-year accounting life may align more closely with practical usage patterns. Conversely, if electricity costs are low, equipment maintenance is good, or the model remains competitive over a longer period, the expected useful life may also extend.

Accounting practices in listed mining companies reflect the trend of reduced economic useful life of mining machines. Bitdeer Technologies Group disclosed in its 2025 Form 20-F that starting from July 2025, the expected useful life of the vast majority of mining machines was adjusted to 2 to 3 years, down from 2 to 5 years; Argo Blockchain plc disclosed in its 2025 Form 20-F that mining machines are typically depreciated straight-line over an expected useful life of 36 to 48 months.

The depreciation period for mining machines is essentially an accounting estimate made by enterprises based on the asset's expected economic usage period, and there is no fixed period that applies uniformly to all mining machines. Enterprises need to consider factors such as the model and generation of mining machines, energy efficiency levels, changes in computational difficulty, equipment renewal plans, and expected residual values to determine the period during which the asset can continuously generate economic benefits. As iterations of mining machines accelerate, such estimates are also more likely to change, hence enterprises need to establish sufficient, verifiable basis and continuously assess whether expected useful life, residual value, and depreciation methods remain reasonable.

2. 100% Full Depreciation under U.S. Federal Tax Law

The core change in U.S. federal taxation comes from Public Law 119-21. This policy targets a wide range of eligible depreciable assets and is not limited to cryptocurrency mining machines. Qualifying assets listed by the IRS include relevant depreciable assets under MACRS with recovery periods not exceeding 20 years, covering qualifying new assets and some second-hand assets. For mining enterprises, whether the mining machines can apply for 100% full depreciation first requires confirmation of the tax classification of the asset itself, timing of acquisition and utilization, the user, and other applicable conditions. Simply signing a purchase order or completing payment does not equate to being put into use; the IRS generally requires that the asset has reached a state suitable for intended use.

Once a mining machine meets applicable conditions, it generates a significant tax timing advantage for mining enterprises. Suppose a mining enterprise purchases a $1 million mining machine and depreciates it over three years straight-line, recognizing approximately $333,000 in depreciation expense each year. If it qualifies for 100% full depreciation under U.S. federal tax law, it can deduct the entire qualifying tax basis of $1 million in the first year, significantly reducing taxable income and cash tax liabilities for a company with higher profits in that period.

3. In Loss Years, Installment Depreciation May Be More Valuable

According to IRC§168(k)(7), taxpayers can choose not to apply full first-year depreciation for a certain category of assets. This choice applies to qualifying assets placed in service in that tax year and is not limited to randomly selected equipment.

In addition to choosing or directly foregoing 100% full depreciation, the new law also provides a transitional option. IRC§168(k)(10) stipulates that starting from the first tax year on or after January 19, 2025, taxpayers may choose to apply 40% additional first-year depreciation for qualifying assets under the new law (certain property with longer production cycles and specific aircraft may qualify for 60%).

If an enterprise chooses not to apply 100% full depreciation for a certain category of assets, it follows the standard MACRS rules for cost recovery. Whether a mining machine qualifies as a five-year asset requires identifying its specific asset classification. If the mining machine is analyzed and deemed a five-year asset using common GDS, double declining balance method, and half-year convention, the standard table rates per Publication 946 are 20%, 32%, 19.2%, 11.52%, 11.52%, and 5.76%, meaning actual cost recovery spans across six tax years.

Whether an enterprise opts for first-year 100% full depreciation depends on the impact of the depreciation deduction timing on the overall tax burden and cash flow of the enterprise. For companies with significantly higher current profits, obtaining an early depreciation deduction typically reduces taxable income and cash tax liabilities sooner; while in a state of tax loss, an additional depreciation may merely expand the net operating loss (NOL), without a simultaneous decline in cash taxes. For ordinary C corporations (taxed independently on corporate income tax), NOLs created after 2017 are generally subject to an 80% taxable income limitation when utilized in future periods; if there's a change in ownership, the utilization of pre-change NOLs may face further restrictions. Therefore, whether to apply 100% full depreciation requires comprehensive calculations considering future profitability, NOL availability, the time value of funds, asset category elections, and other tax law restrictions.

4. How Tax and Accounting Differences Affect the Statements

When the carrying value of an asset exceeds its tax basis, a taxable temporary difference arises, usually resulting in the recognition of a deferred tax liability.

For an example where the cost of a batch of mining machines is $1 million, with a residual value of zero, assuming linear depreciation over three years for accounting purposes. By the end of the first year, accounting depreciation would be approximately $333,000, leaving a carrying value of $666,000 for the mining machine. If taxation conditions meet the U.S. 100% full depreciation qualifications and the full tax basis of $1 million was deducted in the year of use, the tax basis of that mining machine would have dropped to zero.

At this point, the $666,000 carrying value of the mining machine and the zero tax basis result in a taxable temporary difference of $666,000, leading to the recognition of a deferred tax liability. The specific amount of the deferred tax liability should be calculated based on this temporary difference multiplied by the applicable income tax rate that is expected to apply during the period of reversal, as of the end of the reporting period, which has been enacted or substantially enacted.

In the second and third years, accounting depreciation will continue, but because the tax cost has been fully deducted in the first year, there will be no corresponding tax depreciation generated afterward. As the carrying value of the mining machine decreases each year, this taxable temporary difference and corresponding deferred tax liability will gradually reverse.

Therefore, 100% first-year tax depreciation will not shorten the accounting life of the mining machine to one year. Financial statements will still reflect the expected consumption process of the economic benefits of the equipment, while tax filings will handle cost recovery according to the pace allowed by tax law. In practice, the purchase cost, time of use, accounting life, tax asset classification, and amounts already deducted for the same equipment must correspond.

5. Regional Differences in Tax Treatment of Mining Machines

The 100% full depreciation in the United States provides mining enterprises with faster cost recovery while retaining the option of accelerated deductions. However, in Ethiopia and Kazakhstan, mining machines generally need to recover costs annually according to local asset classifications and statutory depreciation rules, limiting the flexibility of tax treatment.

The Federal Income Tax Regulation in Ethiopia (Council of Ministers Regulation No. 410/2017) adopts classified management for depreciation, with computers, software, and data storage devices applying straight-line depreciation of 20% or declining balance method of 25%. For a simplified example, while the enterprise's financial report may depreciate over three years straight-line, if the local tax classification ultimately supports calculating equipment using straight-line method, then the first-year accounting depreciation for the $1 million equipment is approximately $333,000, while the tax depreciation is around $200,000. The tax deduction lags behind accounting depreciation, leaving a tax basis of approximately $800,000 at the end of the period, higher than about $666,000 carrying value, resulting in a deductible temporary difference. This outcome starkly contrasts with the situation in the U.S.

Kazakhstan's new Tax Code (No. 214-VIII) was signed on July 18, 2025, and will take effect on January 1, 2026. According to the updated tax summary from July 2026, tax depreciation primarily adopts the declining balance method, generally grouping fixed assets into four categories: general machinery and equipment up to 25%, and computers and information processing equipment up to 40%. If mining machines are classified into different asset groups, the speed of tax cost recovery will vary accordingly.

Conclusion

The handling of mining machine depreciation first requires clear distinctions between accounting and tax perspectives. For accounting purposes, a reasonable expected useful life should be determined by considering factors such as equipment generations, energy efficiency, and expected operational cycles; for tax purposes, taking U.S. federal tax law as an example, it is necessary to determine whether the relevant equipment meets the criteria for qualified property under IRC§168(k) and based on this determine the applicability of 100% full depreciation, the 40% transitional policy, or the choice not to apply. For mining machines deployed in other jurisdictions, local asset classifications and depreciation rules must also be reassessed.

In practice, the key is to ensure that accounting and tax treatments correspond, requiring enterprises to maintain information such as equipment models, acquisition costs, dates of use, expected useful life, and tax asset classifications in their fixed asset ledgers, providing a consistent data foundation for income tax calculations and related processes. Given the fast-paced updates of mining machines, useful life, operational arrangements, and applicable tax rules may frequently change, therefore enterprises need to periodically review and update accounting estimates and tax judgments timely.