In mid-September, 2020 Uniswap rewarded early adopters of the decentralized exchange with an airdrop of their underlying token: UNI. A minimum of 400 UNI tokens were available to be claimed by anyone who used the platform prior to Sept. 1, 2020. These airdropped coins were worth a substantial amount of money at the time which begs the question: What are the tax implications of claiming your UNI airdrop?
The IRS treats cryptocurrencies as property property for tax purposes, not as currency. Just like other forms of property—stocks, bonds, real estate—you incur a tax reporting requirement when you sell, trade, or otherwise dispose of your cryptocurrency for more or less than you acquired it for.
For example, if you purchased 0.2 Bitcoin for $2,000 in May of 2018 and then sold it two months later for $3,000, you have a $1,000 capital gain. You report this gain on your tax return, and depending on what tax bracket you fall under, you pay a certain percentage of tax on the gain. Rates fluctuate based on your tax bracket as well as depending on whether it was a short term vs. a long term gain. This applies for all cryptocurrencies.
Additionally, if you earn cryptocurrency, whether that is from a job, mining, staking, interest, or an airdrop, you recognize income equal to the fair market value of the cryptocurrency at the time it was received.
For a deep dive on the fundamentals of crypto taxes, checkout our Complete Crypto Tax Guide.
UNI tokens that you claimed from the Uniswap airdrop are treated as income. This means that you are liable for income taxes on the USD value of the claimed airdrop.
The IRS is clear in its guidance regarding the income treatment of airdrops.
John was trading on Uniswap in July 2020 and realizes he can claim 400 UNI tokens with the airdrop. At the time of claiming the tokens, a single UNI token is worth $3.50. John recognizes $1,400 of income (400 * 3.50) on the day he claims the tokens.
Depending on John’s marginal income tax bracket, he will pay a certain percentage of tax on that $1,400 of income.
Airdrops present a slightly risky tax situation as a result of being recognized as income at the time they are received.
For example, if you received your UNI tokens on Sept 17 and then saw them significantly drop in value one month later, you still owe income taxes on the USD amount that the coins were worth on Sept 17. If the value of your tokens drop enough, you may not have enough left to cover your taxes owed on the income.
Proper tax planning is important in these scenarios so that you don’t wind up with an income tax bill that you cannot afford.
You can import your airdropped cryptocurrencies directly into crypto tax software like CryptoTrader.Tax.
CryptoTrader.Tax handles all of the number crunching for you and will produce an income report in US Dollars (or whatever your home fiat currency is) that reports the amount of income you received from all of your crypto activity.
These reports can be brought to your tax professional or imported into tax filing software like TurboTax.
If you have any questions about the specifics of your crypto tax situation, our specialists would be happy to help! Reach us via our live chat support or directly on Twitter.
Alternatively, you can learn more about the tax implications of DeFi in our complete DeFi Tax Guide.