DeFi Tax Guide (IRS Guidance 2026)

Learn about DeFi taxes and how DeFi is taxed by the IRS, including crypto loans, borrowing, yield farming, liquidity mining, staking, play-to-earn, and more.

How does the IRS tax DeFi?

The IRS hasn’t released any specific guidance on the tax treatment of DeFi transactions yet, but your profits will still be taxable as capital gains or ordinary income.

There is plenty of IRS guidance on crypto taxes in the US, much of which will apply to DeFi investments. It all comes down to how the IRS categorizes your crypto transaction: is it a disposal of a capital asset or is it income?

Capital asset vs. income

The IRS is clear that crypto is classed as a capital asset, like a stock. Like with other capital assets, this means when you dispose of it, you have a capital gain or loss. Disposals of crypto include selling, trading, and spending it.

However, the guidance is also clear that you can earn crypto, like an income. In these instances, you'll pay income tax on it. Examples of income from crypto in the current IRS guidance include getting paid in crypto, airdrops, and mining rewards.

With this in mind, while the guidance isn't specific, we can infer the tax treatment of many DeFi transactions, and it'll all come down to how your protocol works.

Which DeFi transactions are taxable?

Is buying, selling, and trading crypto on dexes taxed?

Transactions on dexes are treated the exact same way as transactions on centralized exchanges. So when you sell or trade crypto on a dex, any gain is taxable.

Buying crypto with USD or other fiat currencies is tax-free.

Is DeFi lending taxed?

At first glance, lending crypto doesn’t look taxable. You’re not selling anything; you’re just moving your assets into a protocol, usually a liquidity pool or vault. But whether tax is triggered depends on how the specific DeFi protocol is set up.

If you deposit crypto and receive a new token in return that represents your deposit, the IRS may treat this as a crypto-to-crypto swap. That can trigger capital gains tax.

How your interest is taxed also depends on the protocol. If you earn new tokens or additional crypto as interest, that’s usually treated as income and subject to income tax. Some protocols work differently and instead increase the value of the token you received when you deposited your crypto. In that case, there’s no tax until you sell, swap, or spend the token, and it’s more likely taxed as a capital gain.

Borrowing crypto follows the same pattern. If you post collateral and don’t receive any new tokens in return, there’s usually no taxable event. But if you deposit collateral and receive a token that represents it, the IRS could view that as a crypto trade, which may trigger capital gains tax.

Is liquidity mining taxed?

From a tax perspective, liquidity mining usually involves three actions: adding liquidity, removing liquidity, and earning rewards.

Adding or removing liquidity isn’t always taxable on its own, but it depends on how the protocol works. In many cases, when you add liquidity, you receive a token that represents your share of the pool. That exchange can be treated as a crypto-to-crypto trade and may trigger capital gains tax. Swapping that token back when you remove liquidity can also be taxable.

How rewards are taxed depends on the protocol’s design. Some platforms increase the value of the liquidity token over time, without giving you new tokens. In that case, there’s no tax until you sell or swap the token, and it’s more likely to be subject to capital gains tax.

Other protocols pay out new tokens as rewards. Because you’re receiving new assets, those rewards are usually treated as income and subject to income tax.

In short:

• Income tax: when you earn new tokens as rewards

• Capital gains tax: when your token balance stays the same but increases in value

Is DeFi staking taxed?

This one is pretty straightforward. The IRS has guidance on staking taxes, and states that staking rewards are income when received and taxed as such.

'When received' is important terminology here, as this defines the point at which your staking rewards are taxable. In the guidance, the IRS states that in this instance, staking rewards would be considered received when the taxpayer has control over the assets, so whenever rewards are unlocked, and they have the ability to dispose of their rewards.

Is yield farming taxed?

Yield farming taxes can get messy because yield farming usually involves multiple DeFi transactions. The exact tax treatment depends on which protocols you’re using and how they work.

As a general rule:

• If you sell, swap, or spend tokens as part of yield farming, it’s usually subject to capital gains tax.

• If you receive new tokens or coins as rewards, that’s usually treated as income and subject to income tax.

The details vary by protocol, but most yield farming activity falls into one of these two categories.

Is DeFi interest taxed?

With DeFi, you can either pay interest or earn interest, and each is treated differently for tax purposes.

If you’re paying interest, the tax treatment depends on how you pay it. Paying interest in USD or another fiat currency isn’t taxable. But paying interest in crypto can be treated as spending crypto, which may trigger capital gains tax. In some cases, if the interest is tied to an investment, it may also be tax-deductible.

If you’re earning interest through a DeFi protocol, it’s usually treated as income. The IRS generally views receiving new crypto as taxable income, so interest paid in new tokens is likely subject to income tax.

That said, it depends on how the protocol pays interest. If you receive new coins or tokens, it’s typically income tax. If instead you hold a token that simply increases in value over time, there’s usually no tax until you sell or swap it, and that’s more likely subject to capital gains tax.

Are margin trading, derivatives, and other CFDs taxed?

The IRS doesn’t have clear, crypto-specific rules for margin trading, derivatives, or CFDs, whether on centralized or decentralized exchanges. In practice, crypto traders usually follow the same tax rules that apply to traditional margin and derivatives trading.

If you’re trading as an individual investor, profits from margin trades, derivatives, and CFDs are generally subject to capital gains tax. You don’t owe tax when you open a position; tax applies when you close it and realize a gain or loss.

If your position is liquidated, such as during a margin call, that liquidation is treated as a disposal for tax purposes and must be reported to the IRS.

Are play-to-earn rewards taxed?

The IRS doesn’t have specific rules for play-to-earn games, so tax treatment depends on how each transaction fits into existing crypto tax guidance.

If you earn new tokens from gameplay, those rewards are usually treated as income and subject to income tax.

If you sell or trade tokens or NFTs, that’s typically treated as a disposal of a capital asset and subject to capital gains tax.

How are transaction fees and transfer fees taxed?

Transaction fees can usually be included when calculating capital gains. Any fee you pay to buy, sell, or swap crypto can be added to your cost basis. This increases the total cost of the asset and can reduce your taxable gain when you eventually sell.

Transfer fees do not have the same treatment and cannot be added to your cost basis. They're seen as a maintenance cost rather than an acquisition cost.

Are wrapped tokens taxed?

Wrapped tokens let you use crypto across different blockchains. For example, Bitcoin can’t run on Ethereum, but wrapped tokens like WBTC represent Bitcoin on the Ethereum network at an equivalent value.

From a tax perspective, wrapping a token usually means exchanging one crypto for another. That exchange can be treated as a crypto-to-crypto trade and may trigger capital gains tax.

Even if the wrapped token has the same value and there’s no real gain or loss, the transaction may still need to be reported as a disposal for tax purposes.

Are token rebases taxed?

Some DeFi tokens use a rebasing mechanism to keep their price stable. Instead of the price moving, the protocol adjusts the number of tokens in circulation. If the price drops, your token balance may go down. If the price rises, your balance may increase.

Tokens like Lido’s stETH use rebases to stay in line with the value of the underlying asset, which means your token balance can change regularly even if you haven’t traded anything.

The IRS hasn’t issued specific guidance on token rebases. However, there is similar guidance for stock splits in traditional markets. Stock splits aren’t taxable because the total value stays the same, only the number of shares changes. Based on that, it’s reasonable to assume token rebases may be treated the same way and not considered a taxable event.

Does the IRS know about my DeFi transactions?

In many cases, not directly, but that doesn’t mean they can’t find out.

Most DeFi protocols don’t issue tax forms or report user activity to the IRS the way centralized exchanges do. However, blockchain transactions are public, and the IRS has become increasingly sophisticated at tracking on-chain activity using blockchain analytics tools.

If you’ve moved funds between centralized exchanges and DeFi wallets, those on- and off-ramps can link your identity to on-chain transactions. Once that link exists, DeFi activity is much easier to trace.

How do I report DeFi transactions to the IRS?

You'll report DeFi (and any other crypto transactions) in your annual tax return:

• Form 8949 & Schedule D: Capital gains and losses from disposals of crypto are reported on these forms. Each individual disposal is reported on 8949, while your net gain/loss is reported on Schedule D.

• Schedule 1: Any ordinary income from crypto goes on Schedule 1. Businesses/self-employed traders use Schedule C.

What's the best DeFi tax software?

Koinly supports more than 7,000 DeFi protocols and helps simplify DeFi taxes ahead of the tax deadline. Just sync your wallets automatically via API, and it'll pull in your transaction history, categorize your transactions, and calculate your gains, losses, and income.