Part 7: Forks & Airdrops — Why the IRS Taxes Them the Moment You Receive Them

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🌱 Forks & Airdrops — Why the IRS Taxes Them the Moment You Receive Them

Hard forks, soft forks, and airdrops can create unexpected tax bills — even when you never intended to receive new crypto.
According to IRS rules, any new digital asset you gain control over becomes taxable income immediately.



📖 Table of Contents

1️⃣ What Is a Fork? (Hard vs. Soft Forks)

A fork occurs when a blockchain splits into two paths. Some forks create new assets, while others do not.

💠 Hard Fork

  • Creates a new blockchain and a new token
  • Example: BTC ➝ BCH
  • New assets may qualify as taxable income

💠 Soft Fork

  • Updates the existing blockchain
  • No new tokens are created
  • No taxable event

Tax Rule:
Only hard forks that grant you new tokens create taxable income.

2️⃣ When Forks Become Taxable Income

The IRS says a hard fork becomes taxable when you have:

  • Dominion and control over the new tokens
  • Ability to transfer, sell, or trade them

You must report income based on the fair market value at the time the new crypto becomes available.

Example:

You receive 2 coins from a fork when each is worth $12. → $24 of ordinary income.

3️⃣ How Airdrops Are Taxed Immediately

Airdrops are treated as ordinary income the moment they hit your wallet — even if you didn’t ask for them.

Airdrops count as income when:

  • You receive tokens directly
  • You claim them manually
  • You earn them through promotions or referrals

Important:
The drop in value after you receive the airdrop does NOT remove your tax liability.

4️⃣ Basis and Future Capital Gains

Once you include forked or airdropped tokens as income, that value becomes your cost basis.
When you later sell or swap them, you calculate capital gains using:

Capital Gain = Sale Price – Income Basis

  • If price goes up → taxable gain
  • If price goes down → capital loss

5️⃣ Real-World Examples (BTC, ETH, Altcoins)

BTC → BCH Hard Fork (Classic Example)

  • You held BTC during the fork
  • You received BCH worth $300

→ Report $300 of income.

ETH Airdrop Example

  • Receive 50 tokens at $0.80 each

→ Income = $40

Future Sale Scenario

  • Basis (income value): $40
  • Later sale: $95

→ Capital gain = $55

❓ Frequently Asked Questions

Q1. What if I never sell the airdrop?
You still owe income tax on the value when received.

Q2. What if I ignore or don’t claim the airdrop?
If you do not have control, it may NOT be taxable yet.
Control = key factor.

Q3. Are forked coins taxed again when sold?
Yes — first as income, then later as capital gains.

📚 EA Tax Guide Kindle eBooks

This section contains Amazon affiliate links.

*Amazon affiliate links included. As an Amazon Associate, I earn from qualifying purchases.

📚 EA Tax Guide Kindle eBooks

This section contains Amazon affiliate links.

*Amazon affiliate links included. As an Amazon Associate, I earn from qualifying purchases.

Recommended Crypto Tax Resources:

📚 Crypto Taxation Series (2025)

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