When you trade ETH for UNI on Uniswap, stake your SOL to earn rewards, or add liquidity to a pool on Curve, you're not just using DeFi-you're creating taxable events. And as of 2026, the IRS isn't waiting for DeFi platforms to report those transactions. They're watching you.
DeFi Transactions Are Still Taxable-Even If No Form 1099-DA Comes
The big news in late 2025 was that Congress killed the IRS’s plan to force DeFi platforms to file Form 1099-DA. That sounds like good news, right? Not quite. Just because your DeFi wallet doesn’t send you a tax form doesn’t mean you don’t owe taxes. The IRS has always said: if you sell, trade, or exchange crypto, you owe capital gains tax. That hasn’t changed. DeFi brokers are no longer required to report your trades, but you still are. The burden didn’t disappear-it moved from platforms to your spreadsheet. Think of it like cashing a check at a corner store. The store doesn’t report it to the IRS. But if you earn $5,000 in crypto from DeFi staking and never report it, the IRS can still find out. They have blockchain analytics tools. They cross-reference wallet addresses. They audit.What Transactions Trigger Taxable Events?
Not every crypto action counts. But many DeFi activities do. Here’s what you need to track:- Selling or trading crypto-Even swapping BTC for ETH on a decentralized exchange is a taxable sale. You’re disposing of one asset to acquire another.
- Adding or removing liquidity-When you deposit tokens into a liquidity pool, the IRS treats that as a sale of those tokens at their fair market value. When you withdraw, it’s another sale.
- Earning staking rewards-Every time you receive ETH, SOL, or AVAX as staking rewards, that’s ordinary income. Report it at the USD value on the day you received it.
- Lending crypto-Interest earned from lending platforms like Aave or Compound is taxable as income.
- Receiving airdrops-If you get free tokens, you owe tax on their value when you receive them, not when you sell them.
- Using crypto to buy goods or services-Buying coffee with BTC? That’s a disposal. You owe tax on the gain since you bought that BTC.
Even if you didn’t convert to USD, the IRS sees it as a sale. You’re not avoiding tax by staying in crypto-you’re just changing when and how you pay it.
Cost Basis: The Hidden Nightmare
Here’s where most people get tripped up: cost basis. For centralized exchanges like Coinbase, they report gross proceeds on Form 1099-DA. But they don’t report your original purchase price (cost basis) until 2027. For DeFi? They don’t report anything at all. That means you’re responsible for tracking:- When you bought each token
- How much you paid
- Which specific units you sold
The IRS allows you to use FIFO (First In, First Out) if you don’t specify. But FIFO can be brutal. Imagine buying 1 BTC at $30,000 in 2021, then 1 more at $60,000 in 2023. If you sell 1 BTC in 2025 at $70,000, FIFO says you sold the $30,000 coin. That’s a $40,000 gain. But if you could identify the $60,000 coin, your gain is only $10,000.
So how do you prove which coin you sold? You need records. Wallet transaction history. Exchange purchase logs. Screenshots of trade confirmations. A spreadsheet with dates, amounts, and USD values at time of purchase. No records? The IRS will assume FIFO-and they’ll audit you.
De Minimis Thresholds Don’t Apply to You
You might have heard about $10,000 and $600 thresholds. Those are for brokers, not you. If a DeFi platform doesn’t report a transaction under $10,000, it doesn’t mean you can ignore it. The IRS says: if you dispose of digital assets, you report it. Full stop. The $10,000 limit only means the broker doesn’t have to send you a 1099-DA. It doesn’t mean the transaction is tax-free. Example: You swap $8,000 worth of LINK for DAI on SushiSwap. No form comes. But you bought that LINK for $2,000. You made a $6,000 gain. You owe tax. Period.How to Stay Compliant in 2026
You can’t rely on platforms to do the work anymore. Here’s your checklist:- Track every transaction-Use a crypto tax tool like Koinly, TokenTax, or CoinTracker. They connect to wallets, not just exchanges.
- Record cost basis-Note purchase date, amount, and USD value for every coin you buy.
- Identify specific units-If you want to minimize tax, label which coins you’re selling. Use wallet notes or a spreadsheet.
- Report all income-Staking, lending, airdrops, rewards-all count as income. Report on Form 1040, Schedule 1.
- File Form 8949-This is where you list each sale. The IRS matches this with 1099-DA data from centralized exchanges.
- Keep records for 7 years-The IRS can audit crypto transactions for up to seven years. Don’t delete your wallet history.
What Happens If You Don’t Report?
The IRS has a crypto task force. They’re using blockchain analysis firms like Chainalysis and Elliptic to trace transactions. If you’re trading on DeFi, they can see your wallet address. They can link it to your bank account if you cashed out. They can match your 1099-DA income with your 1040. Penalties are serious:- Underreporting? 20% accuracy penalty on top of tax owed.
- Willful evasion? Up to 7 years in prison and $250,000 in fines.
- Failure to file? $210 per month, up to $12,500 per year.
And it’s not just the U.S. New Zealand’s IRD is watching too. If you’re a resident, you must report global crypto income. No exceptions.
What’s Next? The Uncertain Future
The Congressional nullification of DeFi reporting doesn’t mean the IRS gave up. It means they’re recalibrating. CARF (Common Reporting Standard) is coming. The OECD is pushing global crypto transparency. The White House may still want DeFi reporting-but they’re waiting for a better way to define "broker" in a decentralized world. In the meantime, the message is clear: you are your own tax reporter. The infrastructure for enforcement is here. The tools to track you are better than ever. And the IRS isn’t bluffing.FAQ
Do I need to report DeFi trades if I didn’t cash out to USD?
Yes. Any time you swap one digital asset for another-like ETH for UNI or BTC for SOL-the IRS treats it as a sale. You must report the gain or loss based on the fair market value of what you received and your original cost basis. Not converting to USD doesn’t avoid tax-it just changes how you calculate it.
What if I lost my transaction history from a DeFi wallet?
If you can’t recover your history, the IRS will assume FIFO (First In, First Out) and may estimate your cost basis. This often leads to higher taxes and penalties. Always back up your wallet data. Use a tax tool that syncs with your wallet. If you’ve lost records, consult a crypto tax professional to reconstruct your history from blockchain explorers like Etherscan or Solana Explorer.
Are staking rewards taxed as income or capital gains?
Staking rewards are taxed as ordinary income when you receive them. The value at the time you get them becomes your cost basis. When you later sell those rewards, you pay capital gains tax on any increase in value since you received them.
Can I use a DeFi tax tool to automatically file my return?
Yes, tools like Koinly, TokenTax, and CoinTracker can generate Form 8949 and Schedule D for you. But they don’t file for you-you still need to submit them through your tax software (like TurboTax) or with a CPA. These tools just make the math accurate and the paperwork manageable.
Does the IRS know about my DeFi wallet address?
If you’ve ever traded on a centralized exchange that reports to the IRS (like Coinbase or Kraken), they may have linked your wallet address to your identity. Even if you only use DeFi, the IRS can trace funds flowing into and out of your wallet. They’ve been doing this since 2022. Assume they know. Always report.
Next Steps
- If you traded on DeFi in 2025: pull your wallet history now. Use a tax tool to calculate gains.
- If you’re planning to trade in 2026: set up a tracking system before you make your first swap.
- If you’ve never reported crypto income: consider the IRS’s voluntary disclosure program to avoid penalties.
The rules won’t get easier. The tools to catch you will get smarter. Your responsibility hasn’t changed. It’s never been about whether the platform reports. It’s always been about whether you do.