Are airdrops and staking rewards taxable abroad?

Yes, airdrops and staking rewards are taxable for US citizens and residents regardless of where they live. The IRS has issued specific guidance on both, and the tax treatment applies equally to expats as to domestic taxpayers.

Airdrops are taxed as ordinary income at the time you receive them, measured at the fair market value of the tokens at the time of receipt. This applies to all airdrops — whether they are surprise airdrops, retroactive governance token distributions, hard fork tokens, or promotional distributions. The fair market value at receipt becomes your cost basis for calculating future capital gains when you sell or exchange the tokens. If you receive an airdrop of tokens worth $5,000, you report $5,000 as ordinary income on your tax return and your basis in those tokens is $5,000.

Staking rewards are also treated as taxable income when you receive or gain dominion and control over them. The IRS confirmed this in Revenue Ruling 2023-14, stating that staking rewards are taxable as ordinary income at their fair market value when received by a cash-basis taxpayer. This applies to: proof-of-stake validation rewards, delegated staking rewards, staking through exchanges, and liquid staking token earnings.

For expats, the key consideration is that these are classified as ordinary income (not earned income), which means the Foreign Earned Income Exclusion does NOT apply. You cannot exclude airdrop or staking income from US taxation using the FEIE. However, if your country of residence also taxes this income, you may claim a Foreign Tax Credit to offset the US tax.

Some countries do not tax staking rewards or airdrops (or treat them favorably). In such cases, you will owe full US tax with no foreign credits to offset it. Countries that have historically been crypto-friendly for tax purposes include Portugal (though rules have changed), UAE, Singapore, and others.

Record-keeping is essential: track the date of receipt, the number of tokens received, the fair market value at receipt, and the source (which protocol or exchange). Use screenshots of prices at the time of receipt as documentation.