Borrowing Against Bitcoin Instead of Selling: When German Tax Still Applies

Putting Bitcoin up as collateral for a loan is not a sale. That is exactly why no tax arises at that moment: a private disposal transaction requires you to transfer an asset to a third party for consideration. When you borrow against your coins, the Bitcoin stays attributed to you for tax purposes, the one-year clock keeps running undisturbed, and the loan proceeds are not income. The expensive part sits in one single place, namely when the lender liquidates your collateral. That creates a sale you did not trigger, at a price you did not choose, possibly in the middle of your holding period.

This article sets out the position under German law: the Income Tax Act, the Fiscal Code and the current circular of the Federal Ministry of Finance on crypto assets. It also shows where those sources stay silent, because the expensive misunderstandings grow in exactly those gaps.

Why pledging Bitcoin as loan collateral is not a sale

For tax purposes, crypto assets are other assets within the meaning of section 23(1) sentence 1 number 2 of the German Income Tax Act. The Federal Fiscal Court confirmed this in its ruling of February 14, 2023, case reference IX R 3/22, and the Federal Ministry of Finance adopted it in margin number 53 of its circular of March 6, 2025. The basic rule follows from that. Sell within one year of buying and the gain is taxable. Where more than twelve months lie between acquisition and disposal, it stays tax free.

A private disposal transaction is a transaction in which an acquired asset is passed on for consideration within that period. Margin number 54 of the circular puts it the other way round: an acquisition is the purchase from third parties for consideration, a disposal the transfer to third parties for consideration. Both require an exchange of performance.

A classic crypto loan lacks that exchange. You hand over Bitcoin as security and receive a loan you have to repay. No consideration flows to you, and your claim to the coins remains intact. In economic terms you have given nothing away, you have pledged something. No gain and no loss therefore arises at the moment the collateral is posted, and there is nothing to report on your tax return.

Section 39 of the Fiscal Code: who owns the coins for tax purposes under a security transfer

The decisive provision sits in the Fiscal Code rather than the Income Tax Act. Section 39(1) attributes assets to their owner. Subsection 2 number 1 sentence 2 makes an express exception and names three cases: under a trust arrangement the asset is attributed to the settlor, under a security transfer to the party providing the security, and under proprietary possession to the proprietary possessor.

A security transfer describes the arrangement in which you transfer legal title to an item to the creditor so that the creditor is covered, while you remain the owner in economic terms. For this precise case the legislator decided that tax follows the economic position, not the register or the wording of the contract. Applied to a Bitcoin-backed loan, that means the following. Even if your lender formally becomes the owner of the pledged coins and moves them to an address of its own, they remain yours for tax purposes. No disposal, no fresh acquisition, no new holding period.

That attribution is the reason borrowing against Bitcoin works as a tool in Germany at all. Anyone who needs liquidity without triggering a taxable disposal can raise it through a secured loan instead of selling coins before the one-year period expires. The price is interest and a liquidation risk, which we come to shortly.

What the contract has to deliver

Attribution under section 39 of the Fiscal Code does not apply automatically because a provider calls its product a loan. What matters is whether a genuine security arrangement exists: with a claim to the return of the same quantity of the same crypto assets, with a clearly defined liquidation event, and without a free right of disposal for the lender over your coins in day-to-day operation. Read your terms and conditions closely on those three points and keep a copy of the version that applied when the loan was signed.

Security transfer or right of use: how a Bitcoin-backed loan differs from crypto lending

Some providers allow the lender to on-lend the pledged coins, putting them to work to generate a return. In tax terms that moves the arrangement close to lending, the transfer of crypto assets for a limited period in exchange for a fee. For lending held as private assets the legal position is settled: margin number 65 of the circular assigns the income to section 22 number 3 of the Income Tax Act, because granting the use of an asset for a period is a service rendered by the taxpayer.

What matters just as much is what does not follow from that. Even with lending, the tax authorities treat the handing over of coins as a transfer for a period rather than a sale. What is taxed is the fee you receive, not the holdings you transferred. For you as a borrower that means a great deal speaks for the view that posting collateral does not trigger a sale, even in the variant that permits on-lending. The picture changes if the lender pays you a fee for the use of your coins, because you then hold a separate source of income under section 22 number 3 alongside the loan, and that belongs on your tax return.

What the March 6, 2025 ministry circular covers on collateral, and what it does not

The Federal Ministry of Finance circular with the reference IV C 1 - S 2256/00042/064/043 runs to 34 pages and is the authoritative administrative guidance on crypto assets in Germany. It replaces the earlier version of May 10, 2022 and deals with mining, staking, lending, hard forks, airdrops, the order in which holdings are deemed used, and, since the rewrite, the duties to cooperate and keep records.

On the use of crypto assets as loan collateral it contains not a single paragraph. We searched the full text for the term on September 16, 2026: the German word for security appears once in the entire document, in margin number 92 on the estimation of tax bases under section 162 of the Fiscal Code. That passage has nothing to do with borrowing against Bitcoin.

You have to plan around that gap. While Austria now offers its investors comparatively detailed statements on the subject, German practice works from general principles: section 39 of the Fiscal Code for attribution, section 23 of the Income Tax Act for the holding period, and margin numbers 53 to 63 of the circular for calculating the gain. Anyone looking for an explicit administrative statement on crypto-backed loans will not find one at present. For larger amounts, a binding ruling from the tax office under section 89(2) of the Fiscal Code is therefore the cleaner route than a forum post.

Forced liquidation: why selling the collateral triggers a taxable disposal

The real tax event in a Bitcoin-backed loan arises when the price falls and the lender liquidates the collateral. In legal terms the security turns into money at that moment: the coins are transferred to a third party for consideration, which is precisely the transaction margin number 54 of the circular describes as a disposal. The fact that you did not want the liquidation and did not consent to it makes no difference. Section 23 of the Income Tax Act looks at the economic transaction, not at whether it was voluntary.

The decisive date is the day of liquidation. If no more than one year has passed between your original acquisition and that day, the gain is taxable. If the purchase lies further back, the liquidation stays tax free, however painful it is in economic terms. That is why liquidation risk on recently bought coins cuts twice: you lose the position, and you pay income tax on the paper gain even though all you are left with is the loan amount.

How close a liquidation sits depends on the loan-to-value ratio. For our overview of the liquidation thresholds at eleven providers we pulled the published terms on September 8, 2026 and worked out the price at which each lender steps in. Once you know that threshold, you can set it against your own acquisition date and see immediately whether a liquidation would fall inside the holding period.

Worked example: how to calculate the gain on liquidated Bitcoin collateral

Margin number 57 of the circular sets the formula: disposal proceeds less acquisition costs less deductible expenses. An example with round numbers, deliberately simplified:

• In February you buy 0.5 BTC for a total of 40,000 euros.
• In June you post those 0.5 BTC as collateral and take out a loan of 20,000 euros. Nothing happens for tax purposes.
• In October the price falls, the lender liquidates the collateral and realises 46,000 euros. The transaction fee is 200 euros.

The taxable gain is 46,000 euros minus 40,000 euros minus 200 euros, so 5,800 euros. Because less than a year lies between February and October, that amount is taxed at your personal income tax rate. It arises even though you never wanted to sell the coins and even though the price has fallen. What you hold in your hand is the loan, and the liquidation has repaid it.

Two levers soften the result. First, the de minimis limit under section 23(3) sentence 5 of the Income Tax Act applies: if your total gain from all private disposal transactions in a calendar year stays below 1,000 euros, it is tax free. For assessment periods up to 2023 the limit was 600 euros. This is an exemption limit rather than an allowance, so one euro above it makes the entire gain taxable. Second, you may offset losses from other private disposal transactions in the same year. Section 23(3) sentence 7 restricts that offset to gains from the same category of income, which means a crypto loss cannot be set against gains on shares in Germany, as those fall under section 20.

Holding period and FIFO: which coins the lender disposes of for tax purposes

If you bought Bitcoin at different points in time, the order in which holdings are deemed used decides whether the liquidated coins were still inside the period. Margin number 61 of the circular puts the principle of individual identification first: anyone able to prove which specific units were transferred calculates with those. Only where that is impossible are the crypto assets acquired first deemed to be the ones disposed of, the familiar first-in-first-out method.

Margin number 62 adds a rule that is often overlooked in practice: the assessment is made per wallet. Once chosen, the method must be retained within a wallet until all coins of that trading designation there have been disposed of. For a Bitcoin-backed loan this matters directly, because you almost always fund the collateral from a dedicated address. The wallet you post the security from therefore influences which acquisition dates apply if the collateral is liquidated.

In practice that means posting collateral from holdings that have already passed the one-year mark wherever you can. Even a forced liquidation then stays tax free. A tax tool with portfolio tracking helps here, because it keeps acquisition dates per wallet and shows you which tranche leaves the holding period and when.

No ten-year rule: why a Bitcoin-backed loan does not extend the holding period

One of the most persistent misconceptions concerns section 23(1) sentence 1 number 2 sentence 4 of the Income Tax Act. That provision extends the holding period to ten years where income is generated from the use of an asset in at least one calendar year. On that logic, anyone who borrows against their coins or lends them out would have to wait ten years before a sale became tax free.

The tax authorities take a different view. Under the heading stating that the holding period is not extended to ten years, margin number 63 of the circular says in a single sentence that the provision does not apply to currency or payment tokens. Bitcoin falls into that category. For you that means posting collateral, running a lending position or earning staking rewards does not extend your holding period. It stays at one year.

The earlier 2022 version already said as much, and the rewrite of March 6, 2025 carried it over unchanged. Even so, do not rely on older guides that still claim a ten-year period. When in doubt, check the margin number itself; it sits on page 21 of the circular.

Loan interest, transaction fees and deductible expenses under section 23 of the Income Tax Act

Deductible expenses reduce the taxable gain. Margin number 57 of the circular does require them to be allocated between taxable and non-taxable disposals, and margin number 59 names only one item explicitly: the transaction fees incurred in connection with the disposal. In a liquidation that covers the network fee for the transfer and the fee the lender charges for selling the collateral.

On loan interest the circular says nothing. That is awkward, because under general principles interest on debt is deductible only where it relates directly to the disposal transaction. Where you used the loan proceeds to buy a house, to fund consumption or for another investment, that connection is usually absent. Anyone who still wants to claim the interest should be able to document the use of the loan amount without gaps and settle the question with a tax adviser before the return goes out.

Stablecoin payouts: when the loan proceeds themselves become a taxable swap

Many providers pay the loan out in a stablecoin rather than in euros. A stablecoin is a crypto asset whose price is pegged to a currency. That leaves you holding a second crypto asset, and the same rules apply to it. The inflow is an acquisition, valued at the market price at the time you receive it. If you then swap the stablecoins into euros, margin number 54 treats that as a disposal.

In most cases almost nothing sticks, because only hours pass between receipt and swap. The result is zero on paper only if the price has not moved. A stablecoin pegged to the US dollar fluctuates against the euro with the exchange rate, and over several weeks that can add up to noticeable amounts. The same applies to repayment: if you buy stablecoins to repay the loan and a price gain arises between purchase and repayment, that gain also belongs in the section 23 calculation. Record the time, quantity and euro price for every stablecoin transaction.

Which records you need to keep for the loan and the liquidation

The rewritten circular set out the duties to cooperate and keep records in detail for the first time, and margin number 92 contains a sentence worth taking seriously: if the tax authority cannot establish the tax bases, it estimates them under section 162 of the Fiscal Code. That applies expressly where information is missing or insufficiently clarified. The circular does at least state that an estimate must not serve to penalise taxpayers, and that documents submitted have to be taken into account.

The documents that count in a liquidation

• The purchase receipt for the coins later pledged, with date, quantity and euro value, because it determines the acquisition costs and the holding period.
• The loan agreement together with the terms in force at signing, in particular on the return claim and the right of liquidation.
• The account statement or the provider transaction overview for the liquidation date, showing proceeds, timing and fees withheld.
• The transaction IDs for the transfer to the collateral address and for the later liquidation, so the chain stays traceable on the blockchain.
• Evidence of the wallet the collateral was posted from, because the order of use has to be assessed per wallet.

One point deserves particular attention. Many tax reports automatically book an outflow to an external address as a sale. If your report treats the posting of collateral that way, it shows a gain that does not exist under section 39 of the Fiscal Code. Check that entry and correct it with a note on the transaction before you take the figures over. In the other direction, the later liquidation must not get lost, because that is the transaction which actually counts.

Bitcoin-backed loans: what to take away

1. Check which holdings you post the collateral from before you sign the loan. Coins that have passed the one-year mark keep even a forced liquidation tax free. Which providers allow which loan-to-value ratios is set out in our comparison of crypto lending platforms.
2. Document acquisition, collateralisation and liquidation separately. Posting collateral is not a sale, liquidating it is, and a tax report does not draw that line on its own. A tool from our comparison of crypto tax software carries the acquisition dates through per wallet.
3. Set the liquidation threshold against your acquisition date. Where the threshold falls inside the one-year period, a planned partial sale is often cheaper than a forced liquidation. Venues and terms for that are covered in our overview of how to sell Bitcoin.

Sources and legal basis

The statements in this article rest on the Federal Ministry of Finance circular of March 6, 2025 on individual questions of the income tax treatment of certain crypto assets and on the wording of section 39 of the German Fiscal Code. The rules on the one-year period, the de minimis limit and loss offsetting follow from section 23 of the Income Tax Act.

(As of September 16, 2026. This article is not investment advice. Prices and fee structures change; check the terms with the provider before you buy.)