Estimate tax on DeFi yield (lending, LP, farming), treated as ordinary income at receipt.
Total tax owed
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Total DeFi income
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Your breakdown
Updates live as you type| Yield source | Value at receipt |
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DeFi yield is income the day it lands, not the day you cash out
The protocols feel like a savings account, but the tax treatment is closer to a paycheck. When you earn lending interest on Aave or Compound, collect trading fees as a liquidity provider, or harvest governance tokens from a yield farm, the IRS generally treats the value received as ordinary income at its fair market value on the date you gain control of it. That mirrors the staking-rewards position the IRS set out in Revenue Ruling 2023-14, where rewards are income upon receipt. This calculator sums those receipts and applies your marginal rate to estimate the income tax owed.
The crucial word is ordinary. Unlike a long-term capital gain, DeFi yield does not get the preferential 0%, 15%, or 20% rate. It is taxed alongside your wages at rates that climb to 37% federally for 2026. A trader in the 24% bracket who pulls $10,000 of farming rewards owes the same kind of tax as if they had earned an extra $10,000 of salary.
Three income streams, one ordinary-rate bill
The tool adds your lending interest, LP fees, and farming rewards into a single income figure and multiplies by your marginal rate. The streams are treated identically for income purposes even though they come from very different mechanics under the hood.
A $10,000 yield year at a 32% rate
Take an investor in the 32% bracket who, over the year, receives $3,000 of interest from lending stablecoins, $2,000 of fees as a liquidity provider, and $5,000 of farming rewards. The calculation rolls up like this.
The $10,000 splits into three slices that each contribute to one $3,200 income-tax bill. The wedges below show how the streams combine before the rate is applied.
The second tax event nobody plans for
Recognizing yield as income is only the first taxable event. The tokens you received now carry a cost basis equal to that income amount, and when you later sell or swap them you trigger a separate capital gain or loss on any move in price since receipt. Receive a reward token worth $500 and sell it later for $700, and you owe income tax on the original $500 plus capital gains tax on the $200 of appreciation. The most painful version is a reward token that drops after you book it as income: you can owe tax on value that has since collapsed, with only a capital loss to soften the blow later.
A word on impermanent loss
Liquidity providers often ask whether impermanent loss reduces their taxable yield. It does not, at least not directly. The fees you earn are income when received regardless of what happens to the pool's value. Impermanent loss only becomes a deductible capital loss when you actually withdraw from the position and realize it. Until you pull your liquidity, the loss is on paper and gives you nothing on your return.
Who is this calculator for?
Active DeFi participants who need a quick read on the income-tax side of their yield before filing. It does not attempt to track per-token basis or the later capital gains, so pair it with detailed transaction records or crypto tax software for the full Schedule D and Schedule 1 picture.
How do I value rewards received in a volatile token?
Use the fair market value in US dollars at the moment of receipt, which means the date and time you gained the ability to transfer or sell the tokens. For high-frequency rewards that drip continuously, many filers reasonably use a daily closing price. Document your method and apply it consistently across the year.
Is DeFi yield subject to self-employment tax?
Generally no for a passive investor. Lending interest and LP fees from simply holding positions are investment income, not self-employment income. The line can blur if your activity rises to the level of a trade or business, for example running validator infrastructure as an enterprise. If you are operating at that scale, get advice from a CPA who works with digital assets.