What is an Airdrop?

An airdrop is when an individual receives an allocation of tokens or other cryptoassets.

For example, tokens are given as part of a marketing or advertising campaign in which people are selected to receive them. Other examples of airdrops may involve tokens being provided automatically due to other tokens being held or where an individual has registered to become eligible to take part in the airdrop.

The airdropped cryptoasset typically has its own infrastructure (which may include a smart contract, blockchain or other form of distributed ledger technology) that operates independently of the infrastructure for an existing cryptoasset.

Tax Treatment of Airdrops

Income Tax

In 2019, the IRS issued guidance that crypto received as a result of an airdrop or a hard fork, is treated as ordinary income.

However, any forks or airdrops that occurred before 2019 are still treated this way. The IRS guidance was simply clarification of already existing code. If there is a fork, such as a soft fork, that does not result in the creation of a new token, then it may not be considered income.

Capital Gains Tax

The cryptoassets received as an airdrop will be subject to the capital gains tax regime when they are disposed of, regardless of whether it is treated as taxable income or not upon its receipt. There is likely to be a taxable capital gain upon the disposal of the airdropped token, based on the increase in value since acquisition.

The market value of the cryptoassets at the date of receipt is treated as the acquisition cost for capital gains tax purposes. This is the case whether or not the airdrop is taxable upon receipt.

Airdrops in Recap

Recap has been designed to work out the tax impact of airdrops.

  1. Simply connect your exchange accounts or wallets through our automated integrations or enter your data manually via the user interface or CSV file.

  2. Recap treats airdrops as an acquisition of crypto based on their market value. The airdrop is treated for ordinary income when acquired and for capital gains when later disposed of. All valuations of the assets are determined by Recap's own market valuation engine using both foreign and cryptocurrency exchange rates.

  3. See the tax impact of your airdrops in the tax tab (example below) and in the tax report.

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