Mining Machine Depreciation and Tax Cost Recovery Analysis

For the same ASIC mining machine, the cost may be depreciated over two or three years in the financial statements, while its qualifying tax basis may be fully deducted in the first year for U.S. federal income tax purposes.

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

However, 100% bonus depreciation does not mean that the entire cost of every mining machine can be deducted in the year of purchase. The actual tax treatment still depends on the asset classification, acquisition date, and the date the property is placed in service.

1. Key Characteristics of Depreciation for Mining Machines

ASIC mining machines used in proprietary mining operations and meeting the recognition criteria under IAS 16 are generally capitalized by listed mining companies as mining equipment within property, plant and equipment (PPE) and depreciated over their estimated useful lives.

IAS 16 requires the depreciable amount of an asset to be allocated systematically over its useful life. In determining useful life, an entity considers expected usage, physical wear and tear, technical or commercial obsolescence, and legal or similar limits. Useful life reflects the period over which the asset is expected to be available for use by the entity and may therefore be shorter than the asset's economic life. The depreciation method must be reviewed at least at each financial year-end, and a significant change in the expected pattern of consumption of the asset's future economic benefits is accounted for as a change in an accounting estimate.

For mining machines, however, the fact that equipment remains technically operable does not necessarily mean that continued operation is economically rational. As newer generations of ASICs deliver higher hashrate and better energy efficiency, older machines require lower electricity prices to remain marginally profitable. Increases in network hashrate and mining difficulty can also reduce the expected output attributable to each unit of hashrate.

The practical useful life of a mining machine therefore depends more on the cost at which it can continue to generate economically valuable hashrate. A particular model may be technically capable of operating for five years, but if the company expects its energy efficiency to become insufficient to support economical operation at its electricity price after three years, a three-year accounting useful life may better reflect the actual consumption pattern. Conversely, if electricity costs are lower, equipment is well maintained, or the model remains competitive for a longer period, the estimated useful life may also be longer.

The accounting practices of listed mining companies also reflect a trend toward shorter economic useful lives for mining machines. Bitdeer Technologies Group disclosed in its 2025 Form 20-F that, beginning in July 2025, the estimated useful lives of the majority of its mining machines were revised to two to three years, compared with two to five years previously. Argo Blockchain plc disclosed in its 2025 Form 20-F that mining machines are generally depreciated on a straight-line basis over estimated useful lives of 36 to 48 months.

The depreciation period for mining machines is, in substance, an accounting estimate based on the expected economic period of use of the assets; there is no single fixed useful life that applies to all mining machines. An entity should consider factors such as the machine model and generation, energy efficiency, changes in mining difficulty, equipment replacement plans, and expected residual value when determining the period over which the asset is expected to generate economic benefits. As mining-machine technology evolves more rapidly, these estimates are also more likely to change. Companies therefore need to maintain sufficient and reviewable support and continually assess whether estimated useful lives, residual values, and depreciation methods remain reasonable.

2. 100% Bonus Depreciation Under U.S. Federal Tax Law

The key change for U.S. federal income tax purposes comes from Public Law 119-21. The provision applies broadly to qualifying depreciable property and is not limited to crypto mining machines. The IRS identifies eligible property as including certain depreciable property subject to MACRS with a recovery period of 20 years or less, which may include qualifying new property as well as certain used property. For a mining company, determining whether mining machines qualify for 100% bonus depreciation first requires confirming the tax classification of the assets, the acquisition and placed-in-service dates, the taxpayer using the assets, and other applicable requirements. Merely signing a purchase order or making payment does not constitute placing property in service; the IRS generally requires the property to be in a condition or state of readiness and availability for its specifically assigned function.

Once mining machines satisfy the applicable requirements, the timing benefit can be significant. Assume a mining company purchases US$1 million of mining machines and depreciates them for accounting purposes on a three-year straight-line basis, recognizing approximately US$330,000 of depreciation expense each year. If 100% bonus depreciation applies for U.S. federal tax purposes, the entire US$1 million qualifying tax basis may be deducted in the first year. For a company with substantial current-period taxable income, accelerating the deduction can reduce current taxable income and cash taxes.

3. In Loss Years, Spreading Depreciation Deductions May Be More Valuable

Under IRC §168(k)(7), a taxpayer may elect out of first-year bonus depreciation for a class of property. The election applies to the relevant class of qualifying property placed in service during the taxable year; it is not made selectively for individual items of equipment within that class.

In addition to applying or electing out of 100% bonus depreciation, the new law provides a transitional election. IRC §168(k)(10) provides that, for the taxpayer's first taxable year ending after January 19, 2025, the taxpayer may elect to claim a 40% additional first-year depreciation deduction for qualifying property subject to the new law (60% for certain property with longer production periods and certain aircraft).

If a company elects out of 100% bonus depreciation for a class of property, the cost is recovered under the regular MACRS rules. Whether mining machines constitute five-year property depends on their specific asset classification. If, after analysis, the mining machines are classified as five-year property and the commonly used General Depreciation System (GDS), 200% declining-balance method, and half-year convention apply, the standard table in IRS Publication 946 provides depreciation percentages of 20%, 32%, 19.2%, 11.52%, 11.52%, and 5.76%. In practice, cost recovery therefore extends over six taxable years.

Whether a company should claim 100% first-year bonus depreciation depends on how the timing of deductions affects its overall tax burden and cash flow. For a company with substantial current taxable income, accelerating depreciation deductions generally reduces taxable income and cash taxes sooner. If the company is already in a tax loss position, additional depreciation may simply increase its net operating loss (NOL) without producing an immediate reduction in cash taxes. For a typical C corporation, which is itself subject to corporate income tax, post-2017 NOL carryforwards are generally subject to an 80% taxable income limitation when used in later years. If an ownership change occurs, the use of pre-change NOLs may be subject to further limitations. Accordingly, the decision whether to claim 100% bonus depreciation should be modeled together with expected future profitability, NOL utilization, the time value of money, class-level elections, and other tax-law limitations.

4. How Book–Tax Differences Are Reflected in the Financial Statements

When an asset's carrying amount exceeds its tax base, a taxable temporary difference arises and a deferred tax liability is generally recognized.

Consider a batch of mining machines costing US$1 million with zero residual value, depreciated for accounting purposes on a three-year straight-line basis. At the end of Year 1, book depreciation is approximately US$333,300 and the carrying amount remains approximately US$666,700. If the machines qualify for 100% U.S. bonus depreciation and the full US$1 million tax basis is deducted in the year the assets are placed in service, the tax base of the mining machines is reduced to zero.

At that point, the US$666,700 carrying amount and zero tax base create a taxable temporary difference of US$666,700, on which a deferred tax liability is recognized. The amount of the deferred tax liability is measured by applying to the temporary difference the income tax rate expected to apply when the difference reverses, using tax rates that have been enacted or substantively enacted by the end of the reporting period.

In Years 2 and 3, depreciation continues to be recognized for accounting purposes. Because the tax cost has already been fully deducted in Year 1, no corresponding tax depreciation remains. As the carrying amount of the mining machines declines, the taxable temporary difference and the related deferred tax liability reverse progressively.

Accordingly, 100% first-year tax depreciation does not reduce the accounting useful life of the mining machines to one year. The financial statements continue to reflect the expected pattern in which the equipment's economic benefits are consumed, while the tax return follows the cost-recovery timing permitted by tax law. In practice, the acquisition cost, placed-in-service date, accounting useful life, tax asset classification, and deductions claimed for the same item of equipment should all be traceable to one another.

5. Jurisdictional Differences in Tax Depreciation of Mining Machines

The U.S. 100% bonus depreciation regime provides mining companies with faster tax cost recovery while preserving flexibility over whether to accelerate deductions. In Ethiopia and Kazakhstan, by contrast, the tax cost of mining machines generally must be recovered over time under local asset classifications and statutory depreciation rules, leaving comparatively less flexibility in tax treatment.

Ethiopia's Council of Ministers Federal Income Tax Regulation No. 410/2017 applies depreciation rules by asset category. Computers, software, and data storage equipment are depreciated at 20% under the straight-line method or 25% under the declining-balance method. In a simplified example, assume that a company depreciates US$1 million of equipment over three years on a straight-line basis for financial reporting purposes, while the local tax classification supports treatment as computer equipment using the straight-line method. Book depreciation in Year 1 would be approximately US$333,300, while tax depreciation would be approximately US$200,000. The tax deduction would therefore be slower than book depreciation. The year-end tax base would be approximately US$800,000, exceeding the carrying amount of approximately US$666,700 and, directionally, creating a deductible temporary difference. This is the opposite of the U.S. example.

Kazakhstan's new Tax Code (No. 214-VIII) was signed on July 18, 2025 and took effect on January 1, 2026. According to a tax summary updated in July 2026, tax depreciation is principally calculated using the declining-balance method, with fixed assets generally divided into four groups: general machinery and equipment at a maximum rate of 25%, and computers and information-processing equipment at a maximum rate of 40%. The speed of tax cost recovery for mining machines therefore varies depending on the asset group into which they are classified.

Conclusion

The depreciation treatment of mining machines first requires separate determinations for accounting and tax purposes. For accounting purposes, a reasonable estimated useful life should be established by considering the equipment generation, energy efficiency, expected operating cycle, and other relevant factors. For tax purposes, using U.S. federal tax law as an example, the company must determine whether the equipment constitutes qualified property under IRC §168(k) and, based on that determination, whether to claim 100% bonus depreciation, make the 40% transitional election, or elect out. Mining machines deployed in other jurisdictions must be reassessed under the local asset-classification and depreciation rules.