Have you ever received free crypto in your wallet and wondered if it’s taxable?
Many crypto investors in the US get caught off guard when airdrops and hard forks trigger tax bills they didn’t expect. The IRS considers both events as ways to earn income, even if you didn’t trade or sell anything.
In 2025, the IRS has made its position even clearer. If you gained control of new tokens through an airdrop or a blockchain fork, you likely owe taxes based on the fair market value when you received them. Missing these transactions on your tax return can lead to penalties.
This guide breaks down the latest IRS guidelines for crypto airdrops and hard forks. By the end, you’ll know how to report these correctly and avoid common mistakes.
IRS Treatment of Airdrops and Hard Forks
According to IRS Revenue Ruling 2019-24, income from airdrops and hard forks is recognized when you have dominion and control over the new tokens. This means:
- You can access the tokens in your wallet or exchange account.
- You can transfer, sell, or trade the tokens.
- No technical or legal barriers prevent you from using them.
Until you gain access, no taxable event has occurred.
IRS Rules for Airdrops
When you receive tokens through an airdrop, the fair market value (FMV) of the tokens at the moment you gain access counts as ordinary income. This applies whether the airdrop was part of a promotion, a token launch, or a DeFi reward distribution.
You must report this income on IRS Form 1040 Schedule 1 as “Other Income” for the year in which you gained control over the tokens.
IRS Rules for Hard Forks
If a hard fork results in you receiving new tokens, you must report the FMV of those tokens as ordinary income at the time you gain access.
If the fork occurs but you cannot access the new tokens, perhaps because your exchange does not support the fork, you do not recognize income until you gain control.
Only when the tokens are in your wallet or on an accessible exchange does the income become taxable.
Capital Gains Taxation on Airdropped or Forked Tokens
The tax treatment does not end with reporting income. When you later sell, trade, or spend the airdropped or forked tokens, you must also report a capital gain or loss. The cost basis for these tokens is the fair market value that you previously reported as income. Your capital gain or loss is calculated as the difference between your sale price and the cost basis.
For example, if you reported $800 as ordinary income when you received an airdrop and later sold the tokens for $3,000, your capital gain would be $2,200. This gain is reported on IRS Form 8949 and summarized on Schedule D. Holding the tokens for more than one year may qualify you for long-term capital gains tax rates; otherwise, short-term rates apply.
Read More: Crypto Taxes in the USA: Ultimate Guide
How to Calculate and Report Airdrops on Your Taxes?
When you receive an airdrop, the IRS expects you to calculate your income based on the fair market value (FMV) at the time you gained control over the tokens. This FMV becomes your income for the year and your cost basis for future capital gains calculations. Reporting both accurately is essential to avoid mistakes on your tax return.
Determining Fair Market Value at Receipt
Fair market value is the price at which the airdropped token was trading on a reputable exchange at the time you received control. If the token is new and not yet widely traded, you can use websites like CoinMarketCap or KoinX to estimate its value. Always record the exchange rate and timestamp to support your reported income. The IRS expects the FMV to be calculated in US dollars at the moment you had access to the tokens.
Example of Airdrop Taxation
Let’s say you received 400 UNI tokens on September 1, and the FMV of UNI that day was $2.
- Multiply the number of tokens by the price: 400 x $2 = $800.
- Report this $800 as other income on IRS Form 1040 Schedule 1 for that tax year.
Later, if you sell your UNI tokens when their value has risen to $10 per token, you’ll calculate your capital gain like this:
- Sale price: 400 x $10 = $4,000.
- Subtract your cost basis of $800.
- Your capital gain is $3,200, reported on Form 8949.
Reporting Capital Gains When You Sell Airdropped Tokens
When you sell the airdropped tokens, you must report the sale on IRS Form 8949, where all capital gains and losses from property sales are listed. The cost basis is the FMV you used to report your income at the time of the airdrop.
The difference between your sale price and the cost basis is your capital gain or loss. This gain is then summarized on Schedule D as part of your total investment income for the year.
How to Calculate and Report Hard Forks on Your Taxes?
Hard forks create a separate blockchain that may give you new tokens. If you gain control over these tokens, the IRS expects you to report their fair market value as ordinary income. Like airdrops, your tax reporting depends on the moment you first had access and could use the new coins.
Establishing Cost Basis After a Fork
When you receive tokens from a hard fork, the fair market value at the time of access becomes your cost basis. This means that the price of the forked coin on the day you gained control is used as the baseline for calculating your future capital gains.
You’ll need to record this FMV and the date of receipt to correctly report your income and calculate gains when you eventually sell the tokens.
Reporting Ordinary Income from Forked Coins
The ordinary income from a hard fork is reported on IRS Form 1040 Schedule 1 under “Other Income.”
For example, if you received 10 coins from a fork and each coin was worth $50 at the time of access, you would report $500 as income for that tax year.
If you do not gain access to the new tokens, perhaps because your exchange does not support the fork, you do not report any income until you can control the tokens.
Reporting Capital Gains When Selling Forked Tokens
Once you sell the forked tokens, you must calculate your capital gain or loss. This is done by subtracting your original cost basis (the FMV at the time of receipt) from the sale proceeds. If you sell the forked tokens for more than the FMV you reported as income, the difference is your capital gain.
This gain is reported on IRS Form 8949, with the totals summarised on Schedule D. Holding the tokens for more than one year may qualify you for long-term capital gains rates.
Common Tax Mistakes to Avoid When Reporting Airdrops and Forks
Crypto investors often make reporting mistakes with airdrops and hard forks, either because they misunderstand the rules or forget to track their activity. These errors can lead to underreporting income, incorrect tax calculations, and possible penalties. Being aware of these mistakes helps you stay compliant with IRS guidelines.
Ignoring Airdrops Because They Were Free
Many people assume that because they didn’t buy airdropped tokens, they don’t owe taxes on them. This is incorrect. The IRS taxes airdrops as ordinary income once you have access to the tokens, regardless of whether you asked for them. Failing to report this income can trigger audits, late payment penalties, and interest charges if the IRS identifies the unreported transaction.
Not Reporting Forked Tokens
Forked tokens are often overlooked because they appear without any action from the user. But once you gain control over the new tokens, the IRS considers this taxable income. Some investors forget to report the FMV of these forked coins as income on their tax return. If your exchange provided you access to the forked chain, it’s your responsibility to include it as income for the year.
Using Incorrect FMV or Receipt Dates
Incorrectly calculating the fair market value of your airdrop or fork, or using the wrong date of receipt, can cause you to overstate or understate your income. This mistake affects not only your ordinary income for that year but also your capital gains when you eventually sell the tokens. To avoid these issues, use exchange price data or trusted aggregators and record the exact time you gained control over the tokens.
Tips To Stay Compliant With Airdrops And Hard Forks Taxation
Reporting crypto airdrops and hard forks correctly takes more than just calculating income. You need proper documentation and a clear understanding of when and how you gained access to the tokens. Following these compliance tips can help you avoid mistakes and prepare for potential IRS audits.
Record the Date and Time of Receipt
The IRS taxes you based on when you gain access to the tokens, not when the airdrop or fork was announced. Record the exact date and time when the new tokens appeared in your wallet or on your exchange account. This timestamp helps you calculate the fair market value at the right moment, giving you an accurate income figure to report on your tax return.
Keep Accurate Market Value Records
Always save the fair market value (FMV) of the tokens when you receive them. If your exchange does not provide this information, use data from crypto portfolio trackers like KoinX. Take screenshots or save price history from the day you gained control of the assets. This helps verify your reported income if the IRS questions your filing.
Maintain Detailed Transaction Logs
Airdrops and hard forks can happen outside of exchanges, so your transaction history may be incomplete. Maintain clear records of wallet addresses, transaction hashes, token amounts received, and the source of the airdrop or fork. These details help you reconcile your transaction history, avoid double-counting income, and provide an audit trail for tax reporting.
Account for Double Taxation
Tokens received from airdrops or forks are taxed twice, but in different ways:
- First, you pay ordinary income tax on the fair market value when you gain control of the tokens.
- Later, when you sell the tokens, you calculate capital gains or losses based on the difference between your sale price and your original cost basis.
How KoinX Helps You Accurately Report Airdrops and Forks?
Keeping track of airdrops and hard forks manually is challenging, especially if you use multiple wallets and exchanges. KoinX simplifies this process by automatically identifying, classifying, and reporting these taxable events. For US taxpayers, this means fewer errors and a much smoother tax filing experience.
Import Crypto Transactions from Multiple Platforms
KoinX supports 800+ exchanges, wallets, and DeFi platforms, allowing you to consolidate your entire crypto transaction history in one place. This includes tracking tokens received from airdrops and forks, whether they came through an exchange or directly into your wallet. By automatically importing this data, KoinX saves you the time and effort of manual data entry, ensuring that no taxable event is missed during tax season.
Classify Airdrops and Forks Automatically
One of the biggest challenges in crypto tax reporting is knowing how to label each transaction correctly. KoinX automatically detects airdrops and forks in your transaction history and classifies them as ordinary income at the time you gained control. It also calculates the fair market value at receipt, creating a clear income record and establishing your cost basis for future capital gains calculations.
Generate IRS-Compliant Tax Reports
When tax season arrives, KoinX generates all the forms you need to file your taxes accurately. This includes Form 1040 Schedule 1 for reporting ordinary income from airdrops and forks, and Form 8949 for calculating capital gains when you sell the tokens. With these IRS-compliant reports, you can file your crypto taxes confidently and provide accurate documentation if the IRS requests further details.
Tracking airdrops and forks manually can be tedious and error-prone. KoinX automates the process, helping you generate accurate tax reports and comply with IRS rules. Simplify your crypto tax filing with KoinX today and avoid missing taxable events during the tax season
Conclusion
Crypto airdrops and hard forks can increase your portfolio, but they also bring tax obligations the moment you gain control of new tokens. By understanding the IRS rules, calculating your income at the right time, and tracking your cost basis, you can avoid reporting mistakes.
Tools like KoinX help you stay compliant by automatically classifying your airdrops and forks, calculating your taxes, and generating IRS-ready reports—all in one place. So why wait? Take control of your crypto taxes now, get started with KoinX to protect your investments and focus on growing your portfolio.
Frequently Asked Questions
Are All Airdrops Taxable In The US?
Yes, most airdrops are taxable when you gain access to the tokens. The fair market value of the airdropped tokens at the time of receipt is treated as ordinary income and must be reported on IRS Form 1040 Schedule 1. You owe tax even if you didn’t sell the tokens.
When Do I Owe Tax On A Hard Fork?
You owe tax on a hard fork when you gain control over the forked tokens. If your wallet or exchange allows you to access the new tokens, the fair market value at that time is treated as ordinary income. If you don’t have access, no tax is due until you gain control.
How Do I Find The FMV Of A Forked Token?
The fair market value (FMV) of a forked token is the market price when you gained control over the token. You can find this value on the exchange where the token is listed or use crypto price aggregators like CoinMarketCap. Record the FMV in US dollars for accurate tax reporting.
What Happens If I Miss Reporting An Airdrop In A Past Year?
If you missed reporting an airdrop in a past tax year, you may need to file an amended tax return using IRS Form 1040-X. This allows you to declare the missed income and pay any taxes owed. Addressing the error quickly helps reduce penalties and interest from the IRS.
