What is Airdrop?
Free distribution of cryptocurrency tokens to wallet holders, treated as ordinary income by the IRS when received.
Definition
A cryptocurrency airdrop is a distribution of free tokens to existing wallet holders, often as part of a marketing campaign, protocol upgrade, or community reward. The IRS treats airdrops as ordinary income equal to the fair market value of the tokens at the time you gain dominion and control over them. The income must be reported even if you didn't request the airdrop. Your cost basis in airdropped tokens is the fair market value at the time of receipt.
Who Needs to Know This?
Cryptocurrency holders who receive airdropped tokens, including US expats holding crypto wallets abroad.
Key Deadline
Reported as income on annual tax return for the year received
Potential Penalties
Standard accuracy-related penalties for failure to report
Related Forms
Common Mistakes to Avoid
- 1Ignoring airdrops received in wallets as non-taxable
- 2Not knowing the fair market value at the time of receipt
- 3Not reporting airdrops from protocols you didn't actively use
- 4Failing to track airdrops across multiple wallets
Related Terms
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