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Recap HomeIRS Virtual CurrenciesUK Tax GuideSA Tax Guide
  • Cryptocurrency Tax Guide for US Individuals
    • Virtual Currency & Cryptocurrency
    • Who are Recap?
  • CRYPTOCURRENCY TAX
    • Do I Need to Pay Tax on my Crypto?
    • Which Taxes Apply?
      • Capital Gains Tax (CGT)
      • Income Tax
      • Non-Taxable Transactions
    • How Much Tax Will I Pay?
    • Capital Gains Tax
      • Calculating the Capital Gains and Losses
      • Cost Basis Methods
      • Disposal proceeds
        • Non Taxable Events
        • Taxable Events
        • Donating cryptocurrency to a charitable organization
        • Gifting cryptocurrency to another person
    • Income Tax
      • Receiving cryptocurrency from mining
      • Receiving cryptocurrency rewards
      • Forks
      • Airdrops
      • Tax on Tokenswaps and Mainnetswaps
    • Deductibles and Reducing Capital Gains
  • TRANSACTION TYPES
    • 💷Selling Crypto for Fiat
    • 🛍️Purchases using Crypto
    • 🔄Exchanging one crypto for a different crypto
    • 🎗️Donations to Qualified Charities
    • 🎁Gifts
    • 🎈Airdrops
    • 🤝Staking
    • 💸Transfers
    • 🍴Forks
    • ⛏️Mining
    • 👛Employment income
    • 🚨Lost & Stolen Crypto
    • 💧Liquidity Pools
    • 🔮Cryptoasset derivatives (CFDs, Futures and Margin Trading)
    • 💼Crypto Loans
    • 💎Lending Rewards
    • 🪞Reflections Rewards
    • 👥Referral Income
    • 💳Cashback
    • 🎨NFTs (Non Fungible Tokens)
    • 🎮Play-to-earn gaming NFTs
  • Record Keeping
  • Reporting Income and Gains to the IRS and Paying the Tax
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On this page
  • What is a fork?
  • Tax Treatment
  • Hard Forks
  • Soft Forks

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  1. TRANSACTION TYPES

Forks

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Last updated 3 years ago

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What is a fork?

Some cryptoassets operate by consensus amongst that cryptoasset’s community. When a significant part of the community want to do something different they may create a ‘fork’ in the blockchain. There are two types of forks, a soft fork and a hard fork.

A Soft Fork updates the protocol and is intended to be adopted by all.

A Hard Fork is different and can result in new tokens coming into existence. Before the fork occurs there is a single distributed ledger. Usually, at the point of the hard fork, a second branch (and therefore a new cryptoasset) is created.

Tax Treatment

Hard Forks

The distributed ledger for the original and the new cryptoassets have a shared history up to the fork. If an individual held tokens of the cryptoasset on the original distributed ledger they will, usually, hold an equal number of tokens on both distributed ledgers after the fork.

The value of the new tokens is derived from the original tokens already held by the individual.

If an individual holds their tokens through an exchange, the exchange will make a choice whether to recognise the new tokens created by the fork.

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.

Soft Forks

Soft forks do not create new tokens and as such to not change the tax position.

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