Cryptocurrency airdrops are (usually) free distributions of coins or tokens into multiple wallet addresses to promote and drive adoption of a new virtual currency.
According to the IRS, airdrops (along with promos and staking rewards) only become taxable once the taxpayer acquires the ability to transfer, sell, exchange, or otherwise dispose of the cryptocurrency. Airdropped currency that isn't yet usable or accessible isn't taxable until the taxpayer can exercise control over it.
If you can access your crypto airdrop, follow these steps to report it in TurboTax.
Step 1 - Convert to USD
First, convert the value of your airdrops, promos, and rewards to US dollars (USD) if the issuer or exchange hasn't already done this for you.
You can use an online cryptocurrency converter, such as CoinMarketCap, to determine the USD value based on either the historical close price or the average price (doesn't matter which one you choose, as long as you stay consistent throughout your calculations). Be sure to keep notes of your calculations with your tax records in case it's ever questioned.
Example: Let's say you received .00002776 BTC as a promo onNovember 13, 2023, and you were able to immediately exercise control over it (sell, trade, exchange, etc.).
- On that day, CoinMarketCap reports that the BTC close price was $16,353.37.
- Multiply the quantity received by the close price (0.00002776 × $16,353.37 = $0.45 rounded).
- Repeat this calculation for all airdrops, promos, and staking rewards received in 2023, based on the close price of the day you were able to exercise control over them.
- Add them together for one total sum, and move on to the next section.
Step 2 - Enter in TurboTax
Once you have the USD values, here's how to enter them into TurboTax:
Note: If your TurboTax navigation looks different from what’s described here, learn more.
- With your return open, go to Federalthen Wages & Income.
- Open the Less Common Income section and select Start or Revisit next toMiscellaneous Income, 1099-A, 1099-C.
- On the next screen, select Start or Revisit the very last entry, Other reportable income.
- Answer Yes on the Any Other Taxable Income? screen.
- On the next screen, enter a description (for example, crypto airdrop) and then enter the total USD amount.
- Select Continue, then Done.
FAQs
To report income from a crypto airdrop on your tax return, use IRS Form 1040 Schedule 1. Report it as "Other income" on line 8 and determine the airdrop's fair market value at the time of receipt. This value is usually based on the distributed ledger's record at that moment.
Do you have to pay taxes on airdrops? ›
Yes, airdrops are considered taxable income by the IRS. The fair market value of the airdropped tokens at the time of receipt must be reported as income. If sold, any profit from the sale is subject to capital gains tax.
How do I report crypto transfers? ›
Complete Form 8949 to document your cryptocurrency transactions. Transfer the totals from Form 8949 to Schedule D of your tax return. Report any ordinary income from cryptocurrency on Schedule 1 of Form 1040 unless you're self-employed, in which case you should use Schedule C.
Are crypto airdrops illegal in the US? ›
Can airdrops be legal? Considering that the SEC will probably consider any airdrop to be a “security,” the question becomes whether they are legal. Under federal securities law, a security cannot be offered for sale unless it is registered or is subject to a registration exemption.
How do you claim crypto airdrops? ›
Claiming an airdrop requires you to connect your wallet to a smart contract and sign a transaction. This process can leave your wallet exposed to hacks if the smart contract is constructed with malicious intent.
How to report airdrops on TurboTax? ›
How to report mining, staking, or airdrops on TurboTax
- Navigate to your "Wages & Income" screen in TurboTax.
- Scroll until you find "Other common income." Click “Show More" and then find "Form 1099-MISC." Click “Start." Follow the instructions to transfer the data from your 1099 into TurboTax.
Capital Gains Tax on Airdrops
When you eventually dispose of airdropped crypto you will be subject to Capital Gains Tax regardless of whether it was taxable income or not, based on its change in value since acquisition.
Are crypto transfers reported to IRS? ›
If you have digital asset transactions, you must report them whether or not they result in a taxable gain or loss.
Do I have to report crypto on taxes under $600? ›
You must report income, gain, or loss from all taxable transactions involving virtual currency on your Federal income tax return for the taxable year of the transaction, regardless of the amount or whether you receive a payee statement or information return.
What happens if I don't report crypto on taxes? ›
US taxpayers must report any profits or losses from trading cryptocurrency and any income earned from activities like mining or staking on tax return forms, such as Form 1040 or 8949. Not reporting can result in fines and penalties as high as $100,000 or more severe consequences, including up to five years in prison.
Crypto airdrop tax on capital gains occurs when you sell, swap, or trade airdropped assets. To report income from a crypto airdrop on your tax return, use IRS Form 1040 Schedule 1. List it as "Other income" on line 8 and determine the fair market value at the time of receipt.
What to do with crypto airdrops? ›
Earning Through Crypto Airdrops
- Selling: One way to receive compensation through crypto airdrops is to sell the tokens once they become available. ...
- Holding: Another way to receive compensation through crypto airdrops is to hold the tokens for long-term appreciation.
The benefit is simple: Airdrops are opportunities to receive free crypto (or at least in exchange for a relatively small amount of work). Because cryptocurrencies can go up or down in value, airdrop recipients receive an asset that could be worth much more at some point in the future.
Do crypto airdrops count as income? ›
Airdrops and income tax treatment
The money value of an established token you receive by airdrop is ordinary income at the time you receive it. You need to declare this in your tax return as other income.
How do I claim unclaimed airdrops? ›
How do I claim unclaimed airdrops? On Airdrops. FYI, paste your wallet address into the search bar and hit the search icon to see your unclaimed airdrops. Once you identify your unclaimed airdrops, you'll be redirected to the projects' pages to claim your rewards.
How are crypto airdrops received? ›
To receive the airdropped tokens, you will need a compatible cryptocurrency wallet. Most projects provide instructions on how to set up a wallet and where to provide your wallet address to receive the tokens.
Is an airdrop considered a gift? ›
Yes, they are. Even though you didn't ask for them, even though you didn't buy them, they're considered income because the airdropped crypto has a fair market value.
Are airdrops free money? ›
In simple terms, bounty airdrops are not truly free in that they require some form of labor in order to qualify. Crypto development teams will sometimes reward loyal community members by airdropping new tokens to wallets that hold their cryptocurrency.
Do I need to pay taxes on crypto if I don't sell? ›
Do you need to report taxes on Bitcoin you don't sell? If you buy Bitcoin, there's nothing to report until you sell. If you earned crypto through staking, a hard fork, an airdrop or via any method other than buying it, you'll likely need to report it, even if you haven't sold it.
Is giving crypto away taxable? ›
Giving a crypto gift
Gifts under $15,000 in crypto: No tax implications for gifter. Gifts above $15,000: Gifter must report gift to the IRS, using Form 709. Gifts above $15,000 count toward to a lifetime gift exemption of $11.7 million ($12.06 million in 2022)
