I'm dealing with a situation and need some guidance.
DeFi yield farming tax treatment. I've been dealing with this for about 11 weeks now and the situation isn't improving.
I have already consulted briefly with a lawyer but got conflicting advice.
Has anyone been through something similar? What worked for you?
Short answer: not soon. The IRS has been slowly expanding crypto guidance but DeFi-specific rules are still largely absent. What we know: (1) providing liquidity that involves token swaps is likely a taxable event, (2) LP tokens received may be taxable at FMV, (3) impermanent loss is NOT currently deductible as a realized loss (you'd need to remove liquidity to realize), (4) governance token rewards are income at FMV when received. The Infrastructure Investment and Jobs Act reporting requirements (effective 2025) are still being implemented and DeFi 'brokers' are fighting the definition. For now: use a crypto tax tool (Koinly, CoinTracker, TokenTax), track every transaction, and work with a CPA who specializes in crypto. The cost of professional tax prep is a deductible business expense if you're trading as a business.