Reporting Crypto Airdrop Taxes in 2025

Andrew Perlin
ByAndrew Perlin, CPAReviewed byZac McClure, MBAUpdated on January 26, 2025 · minute read
VerifiedExpert verified

TokenTax content follows strict guidelines for editorial accuracy and integrity. We do not accept money from third party sites, so we can give you the most unbiased and accurate information possible.

  • For US taxpayers, crypto airdrops are generally taxed as ordinary income at fair market value when you gain dominion and control over the tokens.

  • You must also report capital gains or losses if you later sell, trade, or exchange these airdropped tokens.

What is an airdrop?

A “crypto airdrop” is when a project distributes free tokens or NFTs directly to users’ wallets. Projects often do this as a reward for early adopters, a marketing strategy to build awareness, or an incentive for users to engage with a new platform. Airdrops can be claimed or automatically distributed and may involve decentralized applications, centralized exchanges, or NFT marketplaces.

Some airdrops, like the Optimism airdrop, are optional, meaning the user must take action to claim the tokens. Others are automatically sent to holders of certain assets without prior consent, which can create confusion regarding the recipient’s tax obligations.

See our expert picks of the best crypto wallets.

Airdrops tax implications

Receiving an airdrop can trigger immediate tax consequences. Under IRS guidance, airdropped tokens are typically considered ordinary income at their fair market value once they are under your dominion and control. This can result in a tax liability even if you never intended to receive or use those tokens. Selling or trading an airdropped token later may subject you to additional capital gains tax.

Use our free crypto tax calculator.

How are airdrops taxed?

When it comes to "how are airdrops taxed," the IRS states that if you can transfer, sell, or exchange an airdropped token, you must include its fair market value in your taxable income. This rule applies even for involuntary distributions, so you may have taxable income whether or not you want the tokens.

Learn more about the current tax rates for cryptocurrency.

When are airdrops taxed?

The taxable event for a crypto airdrop generally occurs when you gain complete dominion and control over the tokens. In other words, you owe income tax the moment you can freely move, sell, or exchange those assets.

However, determining the exact time of dominion and control can be tricky. If airdrop tokens appear in your wallet automatically, it may be the moment they arrive. If the airdrop requires manual claiming, it could be when you successfully claim them. Because the timing can significantly affect the fair market value reported, we recommend consulting a crypto tax professional to clarify your situation.

Airdrop income example

Suppose you receive 50 KLIMA tokens via an airdrop. If each KLIMA token is worth $2,000 at the moment you gain control, you must report $100,000 (50 x $2,000) as ordinary income on your tax return—regardless of whether the price later goes up or down.

Gain or loss on sale or exchange of an airdropped token

Once you dispose of an airdropped token (by selling it, trading it for another crypto, or exchanging it for goods or services) you incur a capital gain or loss based on the difference between its fair market value at receipt (your cost basis) and its value at the time of disposal. If you held the token for one year or less, any gains are taxed as short-term capital gains. If you held it longer, they are typically taxed at a lower long-term capital gains rate.

Learn how to calculate your crypto taxes.

Where to report my crypto airdrop on my tax return

To report crypto airdrop income, list the fair market value of the tokens as “Other Income” on line 8 of IRS Form 1040 Schedule 1. This ensures the airdrop’s value is recognized as ordinary income for the year during which you received the tokens.

If you dispose of these tokens, you must report the transaction on Form 8949 and Schedule D. Form 8949 details each disposal event, and Schedule D summarizes your total capital gains and losses. Make sure you track the date and value of each airdropped token to calculate any capital gain or loss upon disposal correctly.

Learn more about Form 8949 for cryptocurrency.

Recognizing income from a crypto airdrop

Recognizing income from an airdrop depends on when you can exercise complete control over the tokens. In some instances, tokens may not be tradable or lack a readily determinable market value when received. If that’s the case, you might recognize income later, when a market price is established, or when you can transact with the tokens.

Because the IRS has not provided comprehensive guidance on every possible scenario, it’s wise to maintain detailed records and consult a crypto tax professional to ensure you report your income accurately.

How will the IRS know if I got an airdrop?

The IRS utilizes blockchain analytics tools and works with centralized exchanges to identify taxable events. Because all transactions on public blockchains are transparent, the IRS can theoretically trace an airdrop to your wallet, especially if you’ve used a KYC-compliant exchange. Accurate reporting of any airdrop-related income is always advisable to avoid potential audits or penalties.

Learn more about how the IRS tracks crypto.

How are NFT airdrops taxed?

NFT airdrops follow the same general guidelines as cryptocurrency airdrops. The fair market value of the NFT at the time you take control is counted as ordinary income. If you later sell or trade the NFT, any difference between its initial value (cost basis) and its sale price is subject to capital gains tax. The rate depends on how long you held the asset.

Read our NFT tax guide.

Have us help you calculate your airdrop taxes

At TokenTax, we understand that calculating crypto taxes for airdrops and other complex crypto transactions can be daunting. Our platform automatically aggregates your on-chain and exchange data, providing accurate tax forms, real-time insights, and professional support.

Schedule a FREE crypto tax consultation

Need personalized guidance? Our experienced tax professionals are ready to help you navigate crypto tax rules, clarify the nuances of airdrops, and optimize your overall tax strategy. Schedule a free consultation today and learn how TokenTax can simplify your crypto tax reporting process.

Schedule a FREE crypto tax consultation

Challenges with crypto airdrops and taxes

  1. Data gaps: Missing historical data or unlinked wallets and exchanges can lead to inaccurate tax calculations. Even self-transfers must be tracked for proper classification.

  2. Spam airdrops: Not all distributions are genuine; spam airdrops can clutter your transaction history and inflate your reported income if not properly excluded.

  3. Legal ambiguity: The IRS has given partial guidance on crypto taxation, with some areas open to interpretation.

  4. Complexity of NFTs and DeFi: DeFi activities and NFTs can generate numerous intricate transactions that may overwhelm standard software solutions.

TokenTax addresses these challenges with powerful tools and a team of crypto tax experts who can assist with classification, cost basis tracking, and compliance.

Crypto airdrop taxes FAQs

To stay up to date on the latest, follow TokenTax on Twitter @tokentax.

Andrew Perlin
Andrew PerlinHead of Tax at TokenTax
Andrew Perlin is a CPA specializing in crypto taxes. After working as a financial controller, he co-founded CryptoCPAs, which TokenTax acquired in 2018.
Zac McClure
Reviewed byZac McClureCo-Founder & CEO at TokenTax
Zac co-founded TokenTax after his career in international finance and accounting at JPMorgan, Imprint Capital and Bain. He has worked in more than half-dozen countries and received his MBA from the UPenn Wharton School.

Get a personalized crypto tax consultation.

Complete our questionaire and we'll evaluate your situation — for free.