Depositing crypto into DeFi protocols to earn rewards, often by providing liquidity and moving between pools to chase the highest return. Rewards are ordinary income when received; each deposit and withdrawal can be a taxable exchange.
A single farming strategy can produce dozens of income events and several disposals a month, most of them invisible to any broker. The record of what went in, what came out, and what was earned in between is the whole return.
Income when received, at fair market value. Any later change in the reward tokens' value is capital gain or loss when you dispose of them.
Source: Rev. Rul. 2023-14 (by analogy); no specific IRS guidance on yield farming
Last reviewed September 17, 2026. Tax rules change; confirm current law before acting.
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