How are hard forks taxed?
Megha
Last Update 3 years ago
New currencies received after a hard fork are classified as ordinary income. As a result, if you have new coins in your wallet as a result of a fork, you owe income taxes on them (regardless of whether you intended to own these coins or not). The amount of income is determined by the forked coin's fair market value at the time it is received in the wallet.
Consider the following scenario. If Nitin holds one bitcoin (BTC), the coin splits into one bitcoin (BTC) and one bitcoin cash (BCH). The one BCH he receives must then be declared as ordinary taxable income (not a capital gain). This holds true whether Nitin sells his BCH or not. Let's imagine the BCH has a fair market worth of $300 when he receives it. Then he'll have to pay $300 in ordinary income taxes. Furthermore, Nitin's ordinary income ($300) becomes his foundation for the new BCH ($300), which he will use to compute capital gains/losses if/when he sells his BCH.