Cryptocurrency Airdrop | Should I report it on my taxes?

June, 10 2025 by Jean Lee Scherkey, EA

Cryptocurrency airdrops – you may have heard about them while percolating in line for your cup of coffee at your favorite coffee shop. Perhaps you read about cryptocurrency airdrops while you scrolled through social media. For those who dabble in digital assets, you’ve probably received one or two, maybe without even knowing it. So, what are cryptocurrency airdrops? Is it something that magically appears, like a treasure, or is it more like a trinket destined for the trash? The answer is yes. Cryptocurrency airdrops can run the gamut from being a legitimate asset with value to irritating spam, and sometimes, they can even be a scam. And like many other assets you receive, they are taxable. We will have more on the tax impact a little later, but so I’m not guilty of putting the tax before the receipt, let’s take some of the mystery out of what an airdrop is exactly.
 

What is an airdrop?

First and foremost, these aren’t your grandparents’ airdrops. Instead of falling from the sky through the belly of a plane, the airdrops we are discussing travel through cyberspace, landing in people’s digital asset wallets. And, far from being something you can touch, like information leaflets or humanitarian aid, these airdrops represent a holding in a digital asset such as cryptocurrency (think bitcoin or ether) or a non-fungible token (NFT), like a CryptoKitty or Cryptopunk. Usually, when people talk about airdrops today, they are referring to a means of distributing mass units of digital assets, mostly cryptocurrency, to a multitude of wallets held by different people. One of the ways people receive an airdrop is when a cryptocurrency blockchain experiences a hard fork. (For those who may not be familiar, a hard fork happens when a cryptocurrency blockchain experiences a new protocol, usefulness or utility, corrects a security risk, or needs to reverse a previous transaction that the current blockchain cannot process. When one of these events occurs, the original blockchain will diverge and create a new blockchain. This split is known as a hard fork. During a hard fork, a new cryptocurrency can be created. Those who hold units of the original cryptocurrency will receive a certain number of units of the new cryptocurrency through an airdrop.)¹ Airdrops are also used to promote an established or new cryptocurrency – think of it as giving out a free sample, or to promote a new product, cryptocurrency platform, or service. Here’s an example.

Moira and Johnny’s goal of creating and establishing a digital asset exchange finally came true. On January 9, 2024, their exchange, RosenThorn, launched. To entice people to create an account, RosenThorn distributed a .25 unit of bitcoin to the first 10,000 people who created an account and transferred or purchased cryptocurrency into their new account to say “thank you” for trying their new platform.

Airdrops can be used to thank a cryptocurrency exchange accountholder for referring a new person to the exchange. Start-up companies may issue airdrops containing cryptocurrency units, tokens, or even an NFT to garner attention for their new business endeavor. Receiving a cryptocurrency reward or award is sometimes referred to as an airdrop.
 

How do you receive an airdrop?

When an airdrop occurs, the digital asset, whether a unit or partial unit of cryptocurrency or NFT, is directly deposited into a taxpayer’s digital asset wallet. Digital assets obtained by airdrop are considered received as of the date and time the recipient receives the digital asset and has dominion and control over it. Sometimes, a recipient may not have immediate dominion and control of a digital asset that was airdropped into their wallet. One example is when a digital asset, like cryptocurrency, is deposited into a recipient’s wallet and managed through a cryptocurrency exchange. If the exchange does not support the cryptocurrency airdropped, the recipient may not have immediate access to the cryptocurrency. If this happens, the recipient will use the date and time when they actually have access to the cryptocurrency, not when it was originally airdropped into their wallet. Here is an example.

Moira and Johnny’s digital asset exchange, RosenThorn, was not taking off as quickly as they hoped. To attract more people to open an account and begin investing on their exchange, the exchange developed its own cryptocurrency named RSTN and airdropped two units of the new cryptocurrency into 100,000 wallets as a promotion. David, a cryptocurrency investor, received two units of RSTN in his Coinbase account on March 12, 2024, at noon. Pacific Time. When David received the two units of RSTN into his account, he could not readily access them because Coinbase did not support the new cryptocurrency. A few days later, Coinbase began supporting the receipt of RSTN, and David had access and control over the two units of RSTN on March 18, 2024, at 3:00 p.m. Pacific Time. David is considered to have received the two units of RSTN on March 18, 2024, at 3:00 p.m. Pacific Time.

It is important to record the date and time you received and had control of an airdropped digital asset, as it begins the length of time you are invested in the digital asset, known as the holding period. The holding period determines the length of time you held your asset. Generally, assets held for over a year are taxed at more favorable long-term capital gain rates. The exception to this is the sale, exchange, or other disposition of an asset that is determined to be a collectible, such as artwork, memorabilia, certain jewelry, coins, or non-fungible tokens. Generally, the capital gains on the sale or exchange of a collectible are taxed at the 28% tax rate. Whether you held the collectible for three months or three years does not matter.

 

What is the value of the airdrop received, and how is it taxed?

There are a couple of reasons why it is important to know the value of a digital asset that is airdropped into your wallet. The first is that receiving an airdrop, like cryptocurrency, is considered a taxable event. The fair market value of the airdrop as of the date and time you received and had dominion and control over it is considered taxable income and reported on your personal income tax return for the tax year it is received. Generally, for investors, the receipt of an airdrop is reported as income on Form 1040, Individual Income Tax Return, Schedule 1, Additional Income and Adjustments to Income, Part I, “Additional Income,” Line v, “Digital Assets received as ordinary income not reported elsewhere.”

Knowing and reporting the value of a digital asset airdrop is also important because the fair market value becomes your basis for the asset. Your basis is the amount you report as income on your return and is what you can subtract from the gross proceeds received when you sell, exchange, or otherwise dispose of it. Another example may help clarify things.
 

Let’s go back to David, who received two units of RSTN. When the two units of RSTN were deposited into his account on March 12, 2024, the fair market value of one unit of RSTN was $10, so the total value of the two units was $20. However, David did not have dominion and control over the units until March 18, 2024, when one unit was worth $12; therefore, David would report that he received the two units on March 18, 2024, when one unit of RSTN was worth $12. On his 2024 Form 1040, Schedule 1, Part I, Line v, David will report that he received two units of RSTN with a taxable value of $24. David’s holding period starts on March 18, 2024, and the basis of the two units of RSTN he received is $24.

On January 25, 2025, David exchanged the two units of RSTN for U.S. dollars. When he exchanged the RSTN, one unit was worth $15. Since David exchanged both of his units of RSTN, he received $30. When David files his 2025 Form 1040 return, he will report the exchange as a sale of cryptocurrency on Schedule D, Capital Gains and Losses, and Form 8949, Sales and Other Dispositions of Capital Assets. David’s total capital gain will be $6, calculated as follows:

Total Gross Proceeds: two units of RSTN x $15 = $30.
David’s Basis: two units of RSTN x $12 = $24.
Gross proceeds ($30) – Basis ($24) = Gain of $6.

Because David held the two units of RSTN for less than one year and one day, the $6 is a short-term gain and will be taxed at David’s ordinary tax rate.
 

If you receive more than one airdrop during the year, you should list each one separately on Form 1040, Schedule 1. This way, you will clearly establish the basis of each of the digital assets you received.

What if you do not include the income you received from an airdrop on your tax return? If an airdrop recipient never includes the income on their return, the IRS may determine the basis in the cryptocurrency or NFT as $0 if the transaction is ever audited. Turning back to our example, what if David didn’t report the two units of RSTN as income on his 2024 return, reports the sale on his 2025 return, and the IRS audits David’s 2025 return? If the IRS sees that David did not report the receipt of the two units of RSTN on his 2024 return, the IRS may determine that his basis is $0 and the taxable gain on the sale of RSTN is $30 instead of $6.
 

Do I have to report the fair market value of airdrops I receive as spam on my tax return?

Unfortunately, some airdrops that taxpayers receive are spam, or worse, an underlying scam. Do you still have to report them as income even though they were never wanted? According to IRS rules, particularly Internal Revenue Code Section 61, income is defined as all income from whatever source derived, unless there is a specific exclusion available to exempt the income. Until further guidance arrives from the IRS, Congress, or the courts, cryptocurrency and NFTs received from airdrops are taxable and reportable as income on the recipient’s income tax return, even if the airdrop is spam. Thankfully, the cryptocurrency and NFTs included in a spam airdrop have very little value.

What about unsolicited airdrops that turn out to be scams and steal the other digital assets held in the recipient’s wallet? If this happens to you, can you claim a theft loss on your income tax return for the stolen digital assets? Unfortunately, personal theft losses are generally not deductible for tax years 2018 through 2025, due to the Tax Cuts and Jobs Act of 2017. If Congress extends the Tax Cuts and Jobs Act, this rule may be extended past 2025. Personal theft losses are generally losses not connected with a trade or business, investments entered into for profit, or a theft that occurred in connection with a federally declared disaster.
 

The wrap-up.

Digital assets received via an airdrop, such as cryptocurrency or NFTs, are taxable to the recipient and includable on their income tax return for the year the airdrop was received. Usually, the income reported is equal to the fair market value as of the date and time the digital asset was received and when the recipient had dominion and control over the asset. Digital asset airdrops are constantly evolving, just like the tax code. While you do your best to keep up with the rules and file your return as accurately as possible, misunderstandings and unintended errors happen. Wouldn’t it be nice if help could be instantly airdropped to you if the IRS or a state tax agency audits your digital asset transactions? With TaxAudit’s prepaid Audit Defense membership, you do not have to face an IRS or a state tax agency audit notice alone. Having prepaid Audit Defense membership is like having a team of experienced tax professionals on standby, ready to drop in and assist you with your tax situation. If you are interested in purchasing Audit Defense, please click here.
 

[1] A blockchain can be thought of as a digital bookkeeping system. It is the epicenter where cryptocurrency is created, verified, and recorded.