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Master Airdrop Taxes: 2024 IRS Rules & Filing Guide

written by
Florian Wimmer
,
Blockpit CEO & Crypto Tax Expert
Reviewed by
Georg Brameshuber
,
Crypto Tax Expert & CPA
,
Last Updated:
July 16, 2024

Blockpit employs strict editorial principles to provide accurate, clear and actionable information. Learn more about our Editorial Policy.

Key Takeaways

  • Airdrops are taxable in the US; report their fair market value as income.
  • Later sales of airdrops are taxed as capital gains or losses.
  • Report airdrops as "other income" on Form 1040 Schedule 1 at their receipt date value.
Table of Contents

<div fs-richtext-component="info-box" class="info-box"><div class="flex-info-card"><img src="https://assets-global.website-files.com/65098a145ece52db42b9c274/650c6f4cef4c34160eab4440_Info.svg" loading="eager" width="64" height="64" alt="" class="icon-info-box"><div fs-richtext-component="info-box-text" class="info-box-content"><p class="color-neutral-800">Starting January 1, 2024, the Infrastructure Investment and Jobs Act requires reporting 10,000$+ crypto transactions to the IRS. Yet, the Treasury and IRS deferred digital asset reporting until new regulations are set, promising future guidance and public input on these rules. We keep you informed! </p></div></div></div>

What Are Airdrops?

Airdrops are digital windfalls that land in your cryptocurrency wallet, playing a key role in the crypto marketing strategy. They generate excitement for new coins, reward loyal community members, or ensure fair token distribution. However, these enticing giveaways come with tax responsibilities that shouldn't be ignored.

A notable airdrop example is from Uniswap. On September 17, 2020, 250,000 wallets each received 400 UNI tokens for a single wallet interaction. These tokens were worth thousands of dollars, increasing during the bull market. Most recipients sold their tokens immediately, as analyzed by Dune Analytics.

<div fs-richtext-component="info-box" class="info-box"><div class="flex-info-card"><img src="https://assets-global.website-files.com/65098a145ece52db42b9c274/650c6f4cef4c34160eab4440_Info.svg" loading="eager" width="64" height="64" alt="" class="icon-info-box"><div fs-richtext-component="info-box-text" class="info-box-content"><p class="color-neutral-800">Airdrops are free distributions of cryptocurrency tokens to promote new projects or reward community members. Bounties, on the other hand, involve receiving tokens in exchange for completing specific tasks or services, like promoting the project or finding bugs.</p></div></div></div>

Tax Implications of Airdrops

<div fs-richtext-component="tax-status-income-tax" class="tax-status-pills"><div>Income Tax</div></div> <div fs-richtext-component="tax-status-capital-gains-tax" class="tax-status-pills"><div>Capital Gains Tax</div></div>

In the USA, receiving crypto airdrops is taxable. Recipients must report the fair market value of the airdropped tokens as ordinary income. Later, selling these tokens may lead to capital gains or losses based on the sale price versus the initial value. Tokens held for over a year may qualify for lower long-term capital gains tax rates.

Tax on Airdrops US
Tax on Airdrops US
Tax on Airdrops Example
Tax on Airdrops Example

<div fs-richtext-component="info-box" class="info-box protip"><div class="flex-info-card"><img src="https://assets-global.website-files.com/65098a145ece52db42b9c274/650c6f4b151815fb0be48cec_Lightning.svg" loading="eager" width="64" height="64" alt="" class="icon-info-box"><div fs-richtext-component="info-box-text" class="info-box-content"><p class="color-neutral-800">Are Airdrops Taxed Twice? No, airdropped tokens are initially taxed as ordinary income based on their fair market value when received. Later, only the capital gains or losses from their sale or exchange are taxed, ensuring the asset is not taxed twice.</p></div></div></div>

How Can I Calculate the Cost Basis of My Airdrops?

Your cost basis for airdropped tokens moving forward is the income amount declared when you reported the airdrop on your taxes. This is determined by identifying the fair market value of the tokens at the time they were airdropped.

Blockpit's crypto portfolio tracker simplifies tracking your airdrops' cost basis. Automatically import transactions from exchanges and wallets, and let the portfolio tracker do the rest.

Learn more: IRS Crypto Cost Basis Methods

NFT Airdrops

<div fs-richtext-component="tax-status-income-tax" class="tax-status-pills"><div>Income Tax</div></div> <div fs-richtext-component="tax-status-capital-gains-tax" class="tax-status-pills"><div>Capital Gains Tax</div></div>

Though IRS guidelines on NFT airdrops are pending, they're expected to be taxed like crypto airdrops. Recipients would likely need to recognize income based on the NFT's fair market value at receipt. Selling these NFTs later at a profit would trigger capital gains taxes, with rates depending on the holding period. Understanding these obligations is crucial for compliance and proper reporting.

Reporting Airdrop Taxes

The IRS requires airdrops to be reported as income on your tax return, listed under "other income" on Form 1040 Schedule 1 at their fair market value on the receipt date. When selling these airdropped tokens, report the transaction under Capital Gains Tax on Form 8949, subtracting the FMV at receipt from the sale amount to calculate gains. 

Form 1040 showing where to enter airdrop values

<div fs-richtext-component="info-box" class="info-box warning"><div class="flex-info-card"><img src="https://assets-global.website-files.com/65098a145ece52db42b9c274/650c6f473e84badfdd6e059e_Care.svg" loading="eager" width="64" height="64" alt="" class="icon-info-box"><div fs-richtext-component="info-box-text" class="info-box-content"><p class="color-neutral-800">Hiding airdrops from the IRS is tax evasion, carrying severe penalties. The IRS uses tools like Chainalysis to track transactions, increasing audit and legal risk. Always report airdrop income to avoid serious consequences.</p></div></div></div>

For detailed guidance on reporting, refer to our US crypto tax guide

Use Blockpit'S Crypto Tax Calculator to document all airdrop transactions accurately, ensuring compliance. Blockpit provides prefilled tax forms and automatically imports transactions from exchanges and wallets.

The Benefits of Crypto Tax Software Like Blockpit

Optimize & File Your Airdrop Taxes With Blockpit

Blockpit creates the most comprehensive crypto tax reports in PDF format. The report provides information about all your balances and transactions and can be used as proof of origin with banks or tax advisors. It contains all relevant transactions of your account in the selected tax year and shows details such as timestamp, amount, asset, costs and fees of the individual transactions.

US Blockpit Crypto Tax Report Overview
US Blockpit Crypto Tax Report Overview
US Blockpit Crypto Tax Report Form 1040
US Blockpit Crypto Tax Report Form 1040
US Blockpit Crypto Tax Report Gains and Losses Summary
US Blockpit Crypto Tax Report Gains and Losses Summary

Common Airdrop Tax Issues

  • Unexpected Airdrops: Receiving tokens without consent still creates tax obligations, even if their value is minimal, and must be reported as income. 
  • Price Drop Post-Airdrop: If token values drop after receipt, you may face a tax bill higher than the current asset value, necessitating ongoing monitoring via crypto tax software. 
  • Scam-Related Losses: Losses from airdrop scams are typically not deductible as 'casualty losses' on tax filings. 
  • Incomplete Data: Missing transaction history complicates tax calculations, requiring diligent record-keeping and potential manual adjustments. 
  • Regulatory Uncertainties: The evolving legal framework for crypto transactions, like DeFi and NFTs, requires careful decision-making due to interpretation ambiguities.
Update Log

July 2024: Complete revision; new structure, texts and images

February 2024: Update for 2024

Disclaimer: The information provided in this blog post is for general information purposes only. The information was completed to the best of our knowledge and does not claim either correctness or accuracy. For detailed information on crypto regulations, we recommend contacting a certified legal advisor in the respective country.

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