A CPA's Guide to DeFi Transactions and Taxes
DeFi multiplies the number of taxable events per client. Breaking activity into categories keeps it manageable.
Common DeFi events
- Swaps: token-for-token trades are disposals at fair market value.
- Lending: interest and rewards are generally ordinary income.
- Liquidity pools: entering/exiting may be a disposal; LP rewards are usually income.
Why documentation is everything
Protocols don't issue tidy tax forms, so reconstruction depends on on-chain records. The IRS digital asset rules still apply even without a 1099.
Treat each protocol interaction as a line item. A structured intake and the right cost basis method make DeFi tractable.
Rewards from staking inside DeFi follow the same rules as our staking and mining guide.
Frequently asked questions
Is swapping one token for another taxable?+
Yes. A token-for-token swap is a disposal of the first asset at fair market value and is generally a taxable event.
How are liquidity pool tokens treated?+
Treatment varies. Entering or exiting a pool can be a disposal, and rewards are typically income. Document each step because guidance is still evolving.
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