Overview

The IRS treats most cryptocurrency events that transfer value to you — hard forks, airdrops, and staking rewards — as taxable when you have control of the new tokens or when rewards are paid out. These amounts are generally ordinary income measured by the fair market value (FMV) in U.S. dollars at the time you receive them, and that FMV becomes your cost basis for later dispositions (capital gains or losses).

Key IRS guidance

  • IRS Notice 2014-21: treats virtual currency as property for federal tax purposes, so capital gains rules apply to sales or exchanges (IRS: Virtual Currency Guidance).
  • Revenue Ruling 2019-24: clarifies that virtual currency received from a hard fork or an airdrop is includible in gross income when the taxpayer has dominion and control of the new token.

(See the IRS virtual currency page for the latest FAQs and updates: https://www.irs.gov/businesses/small-businesses-self-employed/virtual-currencies.)

Tax consequences and basis

  • Forks and airdrops: If you receive new tokens and you can transfer, sell, or trade them (i.e., you have dominion and control), include the FMV in income when received. That FMV becomes your basis for future sale.
  • Staking rewards: Rewards you receive for staking are taxable as ordinary income at FMV when you receive them. Later sales use that FMV as your basis and produce capital gain or loss.
  • Subsequent disposition: When you later sell, exchange, or spend the tokens, report a capital gain or loss measured from the basis set at receipt.

Valuation and timing

  • Use the FMV in U.S. dollars at the time you first had control. For liquid tokens, use a reasonable exchange price (timestamped). For illiquid tokens, document your valuation method (comparable trades, reputable OTC quotes, or other reasonable valuation) and keep backups.
  • If you received tokens over multiple dates, treat each receipt separately — each creates its own income event and basis.

Reporting and common forms

  • Ordinary income: Report airdrops and staking rewards as other income on your federal return. If staking is part of a trade or business, income may be reported on Schedule C (self-employment tax implications depend on facts and circumstances).
  • Capital gains: Report sales, trades, or other dispositions on Form 8949 and Schedule D using the basis established when you received the tokens.
  • Information returns: Third-party platforms may issue information returns (e.g., Forms 1099). Reconcile any 1099s with your own records; don’t rely solely on exchange data.

Practical recordkeeping tips

  • Track: date/time received, token type, amount, FMV in USD, wallet/exchange addresses, transaction IDs, and screenshots of market prices.
  • Keep source records: wallet export files, exchange CSVs, and transaction histories.
  • Use consistent accounting: chronologically track receipts and match to custody events (when you had dominion and control).

Examples

  • Hard fork: If ChainX forks and you receive 100 NEW tokens and you can withdraw or sell them, report the FMV of those 100 NEW tokens on the date you gained control as ordinary income.
  • Airdrop: If a project airdrops tokens directly to your wallet, include the FMV of tokens at receipt as income even if you never sell them.
  • Staking: If you earn 2 TOK tokens as staking rewards and can transfer them, include the FMV of the 2 TOK tokens at receipt as ordinary income.

Common mistakes

  • Waiting to report until you sell: Receipt is the taxable event, not only a later sale.
  • Poor valuation: Failing to document FMV or using unreliable price sources increases audit risk.
  • Ignoring basis: Not setting basis at receipt leads to incorrect capital gain calculations when you sell.

When to consult a tax professional

If you receive frequent airdrops or large staking rewards, operate a staking node as a business, or have complicated forks and token distributions, consult a tax advisor experienced in virtual-currency tax issues. Treatment can vary if activities resemble a trade or business, or if you receive tokens through employer compensation.

Related FinHelp resources

Authoritative sources

Professional disclaimer

This article is educational and does not constitute tax advice. Facts and tax law can change; consult a qualified tax professional for guidance specific to your situation.