Let’s define the basics.

An airdrop happens when a blockchain project sends free tokens to your wallet – usually as a promotional move, community reward, or token launch.

A hard fork occurs when a blockchain splits due to a disagreement or protocol change. If you held tokens on the original chain, you might receive new tokens from the fork.

In both cases, you didn’t “buy” the tokens – but the IRS may still view them as income.

The IRS’s position is pretty clear:

If you have dominion and control over the tokens (meaning you can sell, transfer, or use them), they are taxable at the fair market value (FMV) on the day you receive them.

Taxable:

• Airdrops that land in your wallet and are immediately accessible
  
• Hard fork tokens that you can control and use

Not taxable (yet):

• Airdrops that are locked or not supported by your wallet
  
• Forked coins you can’t access or transfer at the time of the event

The tax is based on FMV at the time of receipt – not when you later sell or use the token. This can be tricky, especially if:

• The coin isn’t trading on major exchanges yet
  
• The price is extremely volatile
  
• You didn’t know you received the token until later

Always take a screenshot or record the date, time, and market value when the token lands in your wallet. It’s your proof if the IRS ever asks.

Airdrops and accessible forked tokens are reported as ordinary income in the year you receive them.

• Where: Form 1040, Schedule 1, Line 8z
  
• How: Use FMV as the cost basis

Later: When you sell the token, report capital gains/losses based on its original value vs sale price

Example 1: Taxable Airdrop

You received 100 $ABC tokens into your wallet on June 1, 2025. Each was worth $5 at the time.
→ You must report $500 of ordinary income for 2025.

Example 2: Not Yet Taxable

You claimed 1,000 $XYZ tokens from an airdrop, but they’re locked for 12 months and not yet usable.
→ You don’t report any income – yet. You will when the tokens unlock.

Example 3: Hard Fork

You held Ethereum during a hard fork and received ETH2 tokens that were immediately accessible.
→ You must report the FMV of the ETH2 tokens as ordinary income.

Airdrops and hard forks may feel like surprise wins, but the IRS treats them as potential income – and so should you.

The key is to know when you gained control of the tokens, and what they were worth at that time. Keep solid records, and don’t assume “free” means tax-free.