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Tax toggle - Treat airdrops as income
Tax toggle - Treat airdrops as income
Layla Huang avatar
Written by Layla Huang
Updated over a week ago

You can find this toggle under Settings -> Portfolio & Tax section. Switching this toggle might change the results of your Income Report and Capital Gains Report. The default setting depends on your tax jurisdiction. The choice of settings may impact your tax liability, so it's essential to consult with your accountant or local tax professionals about your situation before making any changes.

Toggle on

If the toggle is switched on, the airdrop is treated as income on your reports. When you dispose of this asset later, the cost base will be the fair market value at the time you receive the airdrop. See the example below:

Date

Category

Asset

Market price

Cost base

Capital gains

Income

Jan. 1, 2022

Airdrop

1 ETH

$4,000

$4,000

-

$4,000

Feb. 1, 2022

Sell

1 ETH

$3,000

$4,000

($1,000)

-


Toggle off

If the toggle is switched on, the airdrop is treated as a zero-cost buy since there was no cost associated with obtaining the asset. When you dispose of this asset later, the cost base is $0. See the example below:

Date

Category

Asset

Market price

Cost base

Capital gains

Income

Jan. 1, 2022

Airdrop

1 ETH

$4,000

$0

-

-

Feb. 1, 2022

Sell

1 ETH

$3,000

$0

$3,000

-

In both examples, the total ‘gains’ are the same. The difference is when the tax is paid (i.e., at what point in time) as well as which category the taxation sits in (e.g., income vs. capital gains).

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