United States: Staking, DeFi, NFTs, Losses, and Pending Changes

5.1 Beyond buying and selling

"Buying and selling is the easy part," said Hash. "The questions get harder with staking, airdrops, DeFi, NFTs, losses, and gifts. Some have clear IRS guidance. Some don't. And Congress was actively debating changes in 2026."

This chapter covers common special situations for US taxpayers as of October 2026. Where guidance is unclear, consult a tax professional and document your reasoning.

5.2 Staking rewards

IRS guidance issued in 2023 states that staking rewards are taxable as ordinary income in the year the taxpayer gains dominion and control over them, meaning the ability to sell, exchange, or otherwise dispose of them. The income equals their fair market value at that time, which also becomes their cost basis.

Situation	General treatment
Rewards credited and immediately withdrawable	Income when credited
Rewards locked until a later date	Generally income when you gain control, which can be later
Liquid staking tokens (Module 9, Chapter 8)	Treatment of exchange-rate based tokens isn't fully settled; professionals take different approaches

5.3 Mining

Mining rewards are generally ordinary income when received. If mining is a business, rather than a hobby, the income may also be subject to self-employment tax, and business expenses like equipment and electricity may be deductible.

5.4 Airdrops and hard forks

IRS guidance from 2019 states that tokens received from an airdrop following a hard fork are ordinary income when the taxpayer receives them and can dispose of them. Other airdrops are generally treated the same way: income at fair market value when received and controlled.

Tokens with no market value when received create practical valuation challenges. Document how you valued them.

5.5 DeFi

Many DeFi activities lack specific IRS guidance. Common approaches, which professionals may handle differently:

Activity	Common considerations
Swapping on a DEX	Disposal: capital gain or loss, like any swap
Lending tokens to a protocol	Interest is income; whether depositing is a disposal is debated
Providing liquidity and receiving LP tokens	May be treated as a swap into LP tokens, or not; approaches vary
Borrowing against crypto	Borrowing itself generally isn't a sale, but liquidations of collateral are disposals (Module 9, Chapter 6)
Wrapping tokens, like ETH to WETH	Treatment debated; many treat it as non-taxable, others conservatively as a swap
Yield farming rewards	Ordinary income when received and controlled

"So for DeFi, the main rule is to be consistent and document what I did," said Mint.

"And to recognise that unclear guidance can change," said Hash.

5.6 NFTs

NFTs are generally treated like other digital assets: buying with crypto is a disposal of that crypto, and selling an NFT creates a capital gain or loss.

IRS guidance from 2023 indicated that some NFTs may be treated as collectibles, for example if they represent ownership of a collectible like art or gems. Long-term gains on collectibles can be taxed at a higher maximum rate than other long-term gains. Creators selling NFTs as a business generally have ordinary income.

5.7 Capital losses

Rule	General treatment
Losses offset gains	Capital losses first offset capital gains
Excess losses	Up to $3,000 of net capital loss per year can offset ordinary income ($1,500 if married filing separately)
Unused losses	Carried forward to future years indefinitely

Example. Suppose someone realises $8,000 of capital gains and $11,000 of capital losses in a year. The losses first cancel the $8,000 of gains, leaving a $3,000 net loss, all of which can offset ordinary income this year. If the losses were $15,000 instead, $8,000 would cancel the gains, $3,000 would offset ordinary income, and the remaining $4,000 would carry forward to future years.

Tax-loss harvesting means selling assets at a loss to realise that loss for tax purposes, often near year-end.

5.8 The wash sale question

For stocks and other securities, the wash sale rule disallows a loss if you buy substantially identical securities within 30 days before or after the sale.

As of October 2026, this rule does not apply to crypto held directly, because crypto is treated as property, not securities. Investors can sell crypto at a loss and buy it back quickly while still recognising the loss.

Important caveats:

1. Spot crypto ETFs are more complicated. Most are structured as grantor trusts, where holders are treated as owning the underlying crypto directly rather than a security, so it's debated whether the wash sale rule reaches them. Fund shares that are clearly securities would be covered. The treatment here isn't settled, so get professional advice before relying on it.
2. Other legal doctrines, such as the requirement that transactions have economic substance, could still be applied in some cases.
3. Congress may change this. In September 2026, the House Ways and Means Committee advanced the Digital Asset Tax Certainty Act (H.R. 10357) by 38 to 5. As approved by the committee, it would extend the wash sale rule to digital assets sold after 14 September 2026, among other changes. As of October 2026, it had not passed the full House or the Senate and wasn't law. If enacted as written, its start date would apply retroactively to sales after that date.

"So a strategy that works today might not work for sales I've already made, if the bill passes as written," said Node.

"Exactly why you plan with current law, but avoid depending entirely on a loophole," said Hash.

5.9 Gifts, donations, and lost assets

Situation	General treatment
Gifting crypto	Generally no income tax for giver or recipient; gifts above the annual exclusion amount may require a gift tax return; recipient generally takes the giver's cost basis
Donating crypto to a qualified charity	May allow a deduction, often at fair market value for assets held over one year; larger donations may require a qualified appraisal
Lost or stolen crypto	Deductibility for individuals is limited and fact-specific; consult a professional
Inheriting crypto	Cost basis is generally stepped up to fair market value at the date of death

5.10 Pending tax legislation, as of October 2026

Proposal	Main ideas	Status
Digital Asset Tax Certainty Act (H.R. 10357)	A $10 de minimis exemption for qualifying network fees; extending wash sale rules to digital assets; treating qualifying crypto loans as non-sales; a programme for taxpayers to correct past returns	Advanced by the House Ways and Means Committee, 38 to 5, on 16 September 2026; not yet passed by the House or Senate
Other de minimis proposals	Exempting small personal crypto purchases, in various forms	Introduced, not enacted

Bills that don't pass before the end of a Congress expire and must be reintroduced. Check the current status before relying on any proposal.

5.11 Try it yourself

List any staking rewards, airdrops, DeFi activity, NFT transactions, and losses from the past year. For each, write how you currently treat it for tax, and whether IRS guidance is clear or uncertain. Then check the current status of the Digital Asset Tax Certainty Act and any newer proposals.

Key takeaways from this chapter

1. Staking rewards are ordinary income when you gain dominion and control over them.
2. Mining, airdrops, and hard-fork tokens are generally ordinary income when received and controlled.
3. Many DeFi activities lack specific guidance; be consistent and document your approach.
4. NFTs are generally treated like other digital assets, but some may be collectibles with higher long-term rates.
5. Capital losses offset gains, then up to $3,000 of ordinary income per year, with the rest carried forward.
6. As of October 2026, the wash sale rule doesn't apply to directly held crypto, its application to crypto ETFs is debated and depends on their structure, and pending legislation could change all of this.
7. Gifts, donations, inheritances, and losses each have specific rules; check current status of pending legislation before relying on it.