Airdrop Handling
Understanding airdrops and their tax treatment
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The REST API reference, plus guides for the dashboard uploader.
Understanding airdrops and their tax treatment
An airdrop is receiving free cryptocurrency. The IRS treats it as taxable income. Here's what you need to know.
Airdrops are free tokens sent to cryptocurrency holders, usually as:
Common examples:
An airdrop counts as ordinary income in the year you receive it.
Receipt date: When tokens appear in your wallet
Fair Market Value: Token price at receipt time
Reportable amount: Number of tokens × Price at receipt
Date: August 10, 2025
Airdrop received: 1,000 UNI tokens
UNI price: $5.50
Income: 1,000 × $5.50 = $5,500
Tax impact: $5,500 ordinary income in 2025
Cost basis: $5,500 per token (starting point)
This is different from earning through trading:
| Airdrop | Capital Gain | |
|---|---|---|
| Type | Ordinary Income | Capital Gain |
| Recognition | When received | When sold |
| Rate | Your tax bracket | Long-term (0-20%) |
| IRS Form | Schedule 1 | Schedule D |
Critical: You owe tax when you receive the airdrop, even if you don't sell it.
Report under "Other Income":
If you later sell airdropped tokens:
We flag transactions marked as:
We record:
Aug 10: Receive 1,000 UNI airdrop (price $5.50)
→ Income: $5,500
→ Cost basis per token: $5.50
Nov 15: Receive another 500 UNI airdrop (price $6.25)
→ Income: $3,125
→ Cost basis per token: $6.25
Jan 20 (next year): Sell all 1,500 UNI at $8.00
→ Gain on first batch: (1,000 × $8.00) - (1,000 × $5.50) = $2,500
→ Gain on second batch: (500 × $8.00) - (500 × $6.25) = $875
→ Total: $5,500 + $3,125 income + $3,375 capital gains
When a blockchain forks (like Bitcoin/Bitcoin Cash split):
Own 1 BTC before fork
After fork: 1 BTC + 1 BCH (free)
Tax treatment: Same as airdrop - BCH is ordinary income at FMV on fork date.
Some airdrop programs give rewards over time:
Week 1: Receive 100 tokens (free airdrop)
Week 2: Receive 50 tokens (bonus for holding)
Week 3: Receive 50 tokens (staking-like rewards)
Tax treatment: All are ordinary income when received.
Some airdrops require actions to claim:
Jan 10: Eligible to receive airdrop (but don't know yet)
Feb 5: Discover airdrop exists
Feb 20: Claim and receive tokens
Tax treatment: Income recognized on claim date (Feb 20), not eligibility date.
The IRS has stated:
Important: There's no exemption for small airdrops. Even $1 worth must be reported.
TaxFormatter formats your export and surfaces items to review in the dashboard's AI Insights panel. It does not recompute cost basis, look up historical prices, or annotate individual rows — those calculations happen in your tax software or with your tax professional, working from the formatted CSV.
May 15: Receive rare airdrop token
Price unknown - no market data
What's the FMV?
Solution: Use the first price it traded for. TaxFormatter uses CoinGecko historical data (conservative estimate).
Announced: Jan 15
Received: March 1
When is income recognized?
Answer: March 1 (when you control the tokens). Not the announcement date.
"Receive tokens IF you hold for 30 days"
Day 15: Receive tokens
Day 30: Vesting complete
Tax treatment: Income at receipt date (Day 15), even though vesting continues.
If airdropped token drops in value:
Received: 1,000 tokens at $5.50 = $5,500 income
Current: 1,000 tokens at $3.00 = $3,000 value
Sell now: $5,500 income - $2,500 loss (partial offset)
Receive airdrop (ordinary income tax)
Hold 1+ year
Sell (long-term capital gain rate)
Overall: Pay ordinary rate on airdrop, but gains taxed at lower rate
If qualified charity:
Receive $10,000 airdrop
Donate directly to charity
Deductible at FMV ($10,000)
No capital gains tax
Pay ordinary income tax ONLY
✓ Airdrops = ordinary income at receipt
✓ Income recognized when tokens hit your wallet
✓ Use FMV at receipt as cost basis
✓ Report on Schedule 1
✓ All airdrops must be reported (no minimum threshold)
✓ No airdrop exception exists for small amounts
Q: Do I owe tax if I don't claim an airdrop?
A: No. Income only when you claim and control the tokens.
Q: If an airdrop expires, is it still taxable?
A: No. If you never claimed it, it's not income.