What is an 'airdrop' in cryptocurrency?
An "airdrop" in cryptocurrency is a strategy where digital tokens or coins are distributed for free to multiple users' digital wallets. Blockchain projects often use this tactic to promote their currency, enhance decentralization, reward existing stakeholders, and drive adoption. To qualify for an airdrop, participants might need to engage in activities like social media sharing or maintaining a specific balance of another cryptocurrency.
Categorizing Transactions as an Airdrop in CoinTracker
CoinTracker allows you to categorize any 'Received' coins in the transactions page as an airdrop so you can review your income by tax year in the Tax page, in addition to the capital gains which are already tracked.
How to Categorize a Transaction as an Airdrop
- If needed, use the filters to find the transaction that needs to be categorized on the Transactions page.
- On the transaction, click the down arrow next to the transaction 'Category.'
- Type "airdrop" in the search bar and select 'Airdrop' from the results.
- Your transaction will now be labeled as 'Airdrop' and can be filtered using the Category drop-down at the top of the page.
- To remove the 'Airdrop' category, use the 3-dot menu on the right and select Delete manual edits.
Feel free to review our guide on how to categorize and edit transactions for more information.
Tax Implications of Tagging as 'Airdrop'
The IRS has left some grey area on how these assets should be taxed. In October 2019, they released a set of FAQs on cryptocurrency taxes that seem to indicate that airdropped coins should be treated as income, with the fair market value at the time of receipt being income and also the basis for the coin as you go forward until you dispose of the forked coin.
If you categorize a transaction as 'Airdrop' in CoinTracker, it will be treated as taxable for your tax calculations.