United States tax guide
Does this article need to be translated?
Submit translations, corrections, and suggestions on GitHub, or reach out on our Community forums.
MetaMask doesn’t provide tax advice. This article represents our stance on IRS guidance received to date, which may continue to evolve and change. None of this should be considered as advice or an individualized recommendation, but it’s important to us that our users have relevant information available to them in the most accessible way possible. Please consult a tax professional regarding your own tax circumstances.
This guide is intended to provide a general overview of common tax obligations in the United States. For a more general overview, see this guide.
Are crypto-to-crypto trades taxable in the US?
A crypto-to-crypto swap is when you exchange one cryptocurrency for another. In most cases, swapping crypto is treated the same as selling it for tax purposes. If there’s a capital gain – meaning it’s increased in value since you purchased it – you could pay taxes on it.
In the United States, you’ll pay capital gains taxes based on the difference between your cost basis and its fair market value at the time of the swap. Swaps are essentially treated as two different transactions: selling your original crypto and then purchasing a different one for the same amount.
For example, if you purchased $10,000 of Bitcoin (BTC) and later swapped it for Ethereum (ETH) when the BTC was worth $15,000, you could pay capital gains taxes on $5,000. Your new cost basis for the ETH is then $15,000.
Is selling crypto a taxable event in the US?
Buying cryptocurrency with US dollars isn’t usually a taxable event. However, there are usually tax implications for selling that crypto for fiat currency, especially if it's worth more than it was when you bought it.
In the United States, you typically pay capital gains taxes on any property that has increased in value since you purchased it. When you sell a cryptocurrency, you’ll pay capital gains taxes on the difference between your cost basis – typically the amount you purchased it for – and the amount you sold it for. You must still report the transaction on your taxes even if you sold for a loss.
The amount you’ll pay depends on how long you hold the crypto. Assets held one year or less are subject to ordinary income taxes, while assets held longer are offered a lower long-term capital gains tax rate.
It’s important to note that if your crypto has declined in value since you bought it, you’ll have a capital loss. You can use capital losses to offset your capital gains and lower your tax burden.
Is staking crypto a taxable event in the US?
Staking allows you to earn rewards for locking your cryptocurrency up to support DeFi network operations. In the United States, staking rewards are treated similarly to the interest earned in your high-yield savings account. It’s considered income, meaning you’ll pay income taxes on the rewards based on their value when you receive them.
If you later decide to sell your staking rewards, you may also be subject to capital gains taxes on its increased value. For example, if you received $50 worth of a coin as a staking reward, you’d pay income taxes on that $50. If you later sold the coin for $75, you’d pay capital gains taxes on the $25 value increase.
How are liquidity pools taxed in the US?
Participating in a liquidity pool can result in a taxable event when you deposit and withdraw your funds. In the United States, depositing into a liquidity pool is typically treated as if you are disposing of that cryptocurrency. For example, if you deposited $5,000 into a liquidity pool, you could be subject to capital gains taxes on the difference between your cost basis in the crypto and its current $5,000 value.
The same goes when you withdraw from the liquidity pool. You’re often given a token that represents your stake in the pool. When you ultimately exchange that token for your original assets when withdrawing, this creates a taxable event and you could pay capital gains taxes if your asset has increased in value.
Rewards from liquidity pools and yield farming
Liquidity pools and yield farming are both ways to create liquidity in the crypto market. In the United States, rewards you earn from liquidity pools and yield farming are treated roughly the same as staking rewards. You’ll pay income taxes on your rewards based on their value when you earn them. For example, if you receive crypto rewards equal to $1,000, you’ll pay taxes on an additional $1,000 of income.
In both cases, you may also be subject to capital gains taxes if you eventually sell your rewards for more than they were worth when you received them.
How are wrapped tokens taxed in the US?
Wrapping a token involves depositing a coin or token into a smart contract and receiving a new asset with similar properties. In the United States, wrapping tokens is often treated as a crypto-to-crypto swap. You’re swapping your original crypto for the newly created wrapped coin. These transactions have the same tax implications as other swaps. You’ll pay capital gains taxes on the increase in your crypto’s value from its cost basis.
You may also encounter an argument for a more tax-friendly (but also riskier) approach, where there’s no taxable event. Rather than looking at it as a swap, some investors choose to consider it as maintaining their original cryptocurrency. However, the IRS has not provided specific guidance for such an approach. It’s best to consult an accountant or tax agent before interpreting the law this way.
What is the tax treatment of airdrops in the USA?
When you receive an airdrop, you receive free cryptocurrency, usually as part of a marketing campaign. Sometimes, you’ll have to complete certain actions to earn it, while other times, you won’t have to do anything.
In the United States, the tax treatment of airdropped coins is almost identical to that of staking rewards. When you initially receive the airdrop, you’ll pay income taxes on the value of the crypto when you receive it. Then, if and when you eventually sell your airdropped coins, you’ll pay capital gains taxes on their increased value.
How is lending and borrowing taxed in the US?
Lending cryptocurrency doesn’t create a taxable event at the time you give the loan. However, you’ll pay income taxes on any interest you receive upon repayment of the loan, just as you would any other type of interest income.
Borrowing doesn’t create a taxable event when you borrow or repay the loan. However, in some specific situations – such as business-related loans – you may be able to deduct your interest expenses.
There could also be tax consequences if your loan collateral is liquidated, which sometimes happens if your collateral declines in value and you no longer meet the loan-to-value ratio required by your loan platform. A forced liquidation is treated as if you sold your crypto, which could result in a capital gain or loss. If this results in you now owning the crypto you originally borrowed, a new cost basis is established at the time of the liquidation.
How are NFTs taxed in the US?
The IRS often treat non-fungible tokens (NFTs) just like cryptocurrency for tax purposes (though there are some notable exceptions). The IRS considers NFTs to be property, just like cryptocurrencies. When you sell an NFT, you will likely pay capital gains (or be able to claim capital losses) on the difference between your cost basis and the amount you sell it for. If the NFT was purchased with crypto like ETH or SOL, the purchase of the NFT will result in a taxable event with the cost basis of the NFT equal to the proceeds of the sold crypto used for the purchase, plus any fees.
There could be an important distinction, though. In 2023, the IRS and the Department of the Treasury requested feedback on the possibility of treating NFTs as collectibles. Collectibles are subject to a higher 28% capital gains tax rate, meaning you’d pay more for your NFT gains than your crypto gains.
And if you receive NFTs as income for any purpose (i.e. airdrop, fork, payments, etc), you’ll have to claim their value as taxable income on your tax return.
The value of NFTs can often be difficult to define due to their fungible nature and lack of a clear, highly liquid market like crypto. There isn't clear guidance on how to value NFTs right now. For instance –- is its value for income tax purposes the floor price? Is it the most recent sale price? The average price for the day? Average price for the year?
As such, it is best to consult a CPA or Tax Attorney if you have NFTs in your portfolio. They can provide you with guidance and may encourage you to get a professional appraisal.
Is bridging tokens a taxable event in the US?
Bridging allows you to transfer crypto assets from one blockchain to another.
The key consideration with bridging is whether some sort of underlying swap takes place.
If you dispose of one token for another, either by wrapping it or depositing it into a pool, in order to receive a new token (whether wrapped or not) on the new chain, then that would be a disposal and treated as a taxable event.
In this case, you would be subject to capital tax gains, like with a crypto-to-crypto swap.
MetaMask does not provide tax advice and this article should not be viewed as such. For questions relating to your specific situation we strongly recommend speaking with a tax professional.