What is actually deductible.
The expenses an LLC that owns Bitcoin mining hardware can deduct, how the depreciation provisions work, and the limits that decide whether any of it reaches your return this year.
6 min readOwnership is the thing that makes this available.
When you buy Bitcoin on an exchange you are spending money that has already been taxed, and you acquire an asset with no depreciation attached to it. There is nothing to deduct because you have not bought equipment and you are not carrying on an activity.
Buying mining hardware is a different transaction. The machines are tangible personal property, they sit on your balance sheet, they have a recovery period and a resale value, and the Bitcoin they produce arrives as revenue of the activity with a cost basis established when you receive it. The ordinary and necessary costs of carrying on that activity are deductible under section 162 in the normal way.
That is the mechanism. What it is worth to you specifically depends on your entity, your other income and your level of involvement, and I deal with the limits on that further down rather than leaving them to the end.
Hardware depreciation.
ASIC miners are five year property under MACRS. Straight MACRS recovery is always available, and two provisions let you accelerate it.
Section 179
Lets you elect to expense the cost of qualifying equipment in the year it is placed in service, up to $2,560,000 for 2026 with a phase out once total purchases pass the spending cap. The election is limited to your taxable income from the active conduct of a trade or business, and anything disallowed by that limit carries forward.
Bonus depreciation
The One Big Beautiful Bill Act, signed in July 2025, restored 100% bonus depreciation for qualified property placed in service after 19 January 2025. It applies to new and used equipment, and unlike section 179 it is not capped by business taxable income, so it can create or increase a loss.
Placed in service
The clock starts when the machine is installed, energised and ready to produce, not when you pay for it or when it ships. A unit bought in December and racked in February is a deduction for the following year. This is the single most common way the timing goes wrong.
State conformity
Several states do not follow federal bonus depreciation and require their own adjustment. California, New York, New Jersey, Pennsylvania, Arkansas, Hawaii, Maryland and Mississippi all sit outside federal treatment in one way or another. Your federal answer is not automatically your state answer.
Which provision to use is not obvious and the two interact. Section 179 is elective per asset and capped by income. Bonus is automatic unless you elect out, by class. The right combination depends on what else is on your return, which is why the choice belongs with your accountant rather than with a vendor.
Hosting.
Hosting is a bundled service. The facility quotes it in dollars per kilowatt hour because that is a convenient unit for billing against a machine’s power draw, but you are not being passed an electricity bill at cost. The fee covers rack space, power distribution, cooling, network, physical security and the facility’s own margin, and there is no underlying meter reading you can audit it against.
I am specific about this because comparing two facilities on the quoted rate alone compares two bundles rather than two power prices, and the cheaper number often carries a worse agreement behind it. The rate can also move mid term under most facility contracts. That is set out in full on what can go wrong.
For deduction purposes the treatment is simple: it is an ordinary and necessary operating expense of the activity, deductible as incurred.
My fee, and why it is not an invoice.
I take 3% of pool output, applied as a split at the pool. It is not billed to you and you never pay it out of your own funds. The practical consequence for your books is that it reduces the amount distributed to your wallet rather than arriving as an expense you pay and then deduct. Your accountant will want to know that, because the two are not recorded the same way.
It also means the fee only exists when the machines produce. If they sit idle, there is nothing to split. That is the alignment I would want if I were the one writing the cheque, and it is why the arrangement is built that way. What I do for it is source hardware, monitor the fleet, coordinate with facilities and report. You own the machines, the hosting agreements, the pool account and the wallet, and every decision is yours. Pricing sets out the full structure.
The rest of the ordinary and necessary list.
Professional fees
Accountancy, tax preparation and the legal cost of forming and maintaining the entity.
Insurance
Cover on the hardware itself, where a facility’s own policy does not extend to your machines. It usually does not.
Monitoring and software
Pool dashboards, monitoring tools and any subscription genuinely used for the activity.
Repairs and consumables
Fans, power supplies and hashboard replacements. These are consumables on a machine running continuously, not rare events.
Travel
A genuine visit to the facility where the machines are. The substantiation rules here are strict and the deduction is a frequent examination target.
Interest
Interest on financing used to acquire the equipment, subject to the business interest limitation.
Ordinary and necessary is the statutory test and it does real work. An expense has to be common in this line of activity and helpful to it. That is a lower bar than people fear and a higher one than the more enthusiastic corners of the internet suggest.
Where deductions stop.
A deduction existing is not the same as a deduction reaching your return this year. Four limits sit between the two, and they apply in order.
Basis
You cannot deduct more than your adjusted basis in the entity.
At risk
Section 465 restricts the deduction to amounts you genuinely have at risk, which is where some financing structures get caught.
Passive activity
If section 469 characterises the activity as passive to you, losses from it are generally usable only against passive income and are otherwise suspended and carried forward. Whether it is passive to you turns on material participation, and bringing in outside support makes two of the three common tests harder rather than easier.
Excess business loss
Section 461(l) caps the aggregate net business loss a non corporate taxpayer can use against non business income in a year, at a threshold indexed annually.
The third of those is the one that surprises people, and it deserves more than a paragraph. I have written it up separately in the passive activity trap. If your reason for looking at mining is the deduction, read that one before you read anything else here.
The number belongs to your CPA.
You will find sites that show you a worked example ending in a tax saving figure and an effective cost per coin. I do not publish one, and the reason is not modesty. The result depends on your bracket, your entity, your state, your other income and your involvement, so any number a website shows you is a number computed for someone who is not you. Putting it in front of you as though it were yours is a line I am not willing to stand behind.
What I can do is produce the record your accountant needs to compute it properly: machine serial numbers and purchase invoices, placed in service dates, hosting costs by site, and monthly production statements in a form they can file from. That is usually the part that is missing when someone brings this to their accountant on their own.
Mistakes worth avoiding.
Buying before the entity exists
Get the LLC formed and the bank account open first. Retitling equipment afterwards is avoidable work and it weakens the record.
Treating the purchase date as the start
Placed in service is the test. Track energisation dates per machine, not invoice dates.
Assuming the state follows
Check conformity before you rely on a federal bonus figure in your planning.
Assuming the loss lands where you want it
Ask about material participation before capital is committed, not at filing.
Thin records
Serials, invoices, hosting statements, production reports and a contemporaneous time log if participation matters to your position. Reconstructed records are worth very little under examination.
Find out whether this fits.
Thirty minutes on your capital, your timeline and your entity. If the numbers do not work I will say so on the call. You can also read the hardware and how it works first.
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