DeFi introduced transaction types the IRS hadn't considered when it first issued crypto guidance. Staking, liquidity provision, yield farming, lending, and bridging each generate income or disposal events. The tax treatment varies.

This covers what the IRS has actually said, where guidance is clear, and where genuine grey areas remain. For a broader overview of US crypto tax, start with the complete US crypto tax guide.

Staking rewards

The IRS has been explicit on this one. Revenue Ruling 2023-14 confirmed that staking rewards are taxable as ordinary income when you receive them, at the moment you gain dominion and control over the tokens.

That means:

• The fair market value at date of receipt is your gross income
• That amount becomes your cost basis for those tokens
• When you later sell, you trigger a capital gains or loss event

Staking produces two potential tax events: income tax when you receive rewards, and capital gains tax when you dispose of them. How the price moves between those two points determines whether the second event results in a gain or a loss.

Liquid staking

Depositing ETH into a liquid staking protocol produces a receipt token (stETH, rETH). The IRS hasn't addressed this specifically. The prevailing view: the deposit is likely a taxable swap. Reward accrual embedded in the receipt token is likely income. This remains a grey area worth discussing with a tax adviser.

Liquidity pools

Depositing into a liquidity pool (Uniswap, Curve) typically produces LP tokens. Most tax professionals treat this as a taxable swap. Withdrawal reverses it: you dispose of LP tokens and receive back the underlying assets. Impermanent loss affects the calculation. Fees earned are generally income when received.

Yield farming and lending

Yield farming rewards are generally ordinary income at fair market value when received. So is interest from protocols like Aave or Compound. In protocols that issue interest-bearing tokens, the accrual may be taxable as it happens, though this is still being debated.

Bridging

Bridging between blockchains may or may not be a taxable disposal depending on how the bridge works. If you receive a new token in exchange for your original asset, that may be a taxable swap. If the bridge locks and unlocks the same asset, probably not. The IRS hasn't been specific. When in doubt, document it.

Airdrops and governance tokens

Rev. Rul. 2019-24 confirmed airdrops are ordinary income at fair market value when received, provided you have dominion and control over the tokens. Governance token distributions work the same way.

NFTs in DeFi

NFTs add complexity, especially when used as collateral or as liquidity positions (Uniswap v3). For a dedicated breakdown, see our guide on NFT taxes in the US.

How to report it

Staking rewards, yield farming income, airdrops, and liquidity fees are ordinary income. They typically go on Schedule 1 (Line 8), or Schedule C if your activity qualifies as a trade or business.

Capital gains and losses from DeFi disposals go on Form 8949 and Schedule D. For a breakdown of every form you need, see our guide to crypto tax forms explained.

For the full reporting walkthrough, see how to report crypto on your taxes.

How Summ handles DeFi

Summ supports DeFi and staking across 1,000+ integrations, including Ethereum, Solana, and major L2s. Staking rewards are automatically categorised as income. Summ identifies LP deposits, withdrawals, and fee accruals, and tracks cost basis for receipt tokens.

For complex portfolios, Summ's reconciliation tools surface missing data before filing.

Try Summ free to see how your DeFi transactions are classified.