Is crypto interest taxable?

Yes, crypto interest is generally taxable in the US. If you lend crypto through a platform or earn yield in DeFi and receive more coins, the IRS generally expects you to report their dollar value as ordinary income in the year you gain control of them, even if you never convert them to cash.

How does the IRS treat crypto interest income?

Two basic IRS principles meet here. First, the IRS treats digital assets as property, not currency. Second, its general rule is that any interest you receive, or that is credited to your account and can be withdrawn, is taxable income.

When you receive crypto as a reward, award or payment, the IRS says you must answer "Yes" to the digital asset question on Form 1040. Income received in crypto is measured at its fair market value in US dollars when you receive it. That same dollar amount becomes your cost basis in the new coins, so if you later sell them, you report a separate capital gain or loss.

Is crypto lending taxed differently from DeFi yield?

The IRS has not published a separate rule for each product. Its digital asset FAQs, last updated in June 2026, cover income from services, forks and sales, but they do not specifically address lending interest or DeFi yield. Tax treatment can depend on how a product is structured, for example whether you keep ownership of your coins or hand them to a platform or protocol. See crypto lending and borrowing and what DeFi is for how these products work.

Staking, a related way to earn more crypto, has clearer guidance. Revenue Ruling 2023-14 says staking rewards are income when you gain the ability to sell or otherwise dispose of them, at their value at that moment. In June 2026, the Tax Court ruled in Paschall v. Commissioner that staking rewards were taxable when received. For more, see is crypto staking taxable.

What if the platform paying interest freezes withdrawals?

A 2024 IRS Chief Counsel memo looked at rewards credited by a platform that later froze accounts and filed for bankruptcy. It concluded the rewards were still income in the year they were credited, because they were received before the freeze. A special tax rule for interest on frozen bank deposits did not apply, since the platform was not a qualified financial institution paying interest on deposits. See also what happens if a crypto exchange goes bankrupt.

How do you report crypto interest?

The IRS says ordinary income from digital assets outside a business goes on Schedule 1 of Form 1040, while income earned as an independent contractor goes on Schedule C. In the Paschall case, the platform had issued a Form 1099-MISC that the taxpayers never received, and they still owed tax on the rewards. Keeping a record of the date, amount and dollar value of each payment makes this easier.

Rules differ by country and change often. Check the tax authority or a qualified professional for your own situation.