Borrowing against crypto collateral, on a centralized platform or a DeFi protocol. Borrowing is not a sale, so posting collateral and receiving the loan is not taxable. A liquidation, where the platform sells your collateral to cover the loan, is a disposal.
Borrowing is one of the few ways to get liquidity from crypto without a taxable event, which is why it is popular. The trap is the liquidation: a forced sale at a bad price is still a sale, with gain or loss measured from your basis.
Taking the loan is not. Interest paid is generally not deductible for an investor. A liquidation of the collateral is a taxable sale.
Source: IRC 1001; IRS Notice 2014-21
Last reviewed September 17, 2026. Tax rules change; confirm current law before acting.
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