XRP Taxes 2026: Capital Gains, SEC Settlement, Flare Airdrop & XRPL DeFi

XRP has more legal history behind it than almost any other cryptocurrency — five years of SEC litigation ended in August 2025. That history does not change the basic tax treatment (XRP is property, disposals are capital events), but it does create planning questions for long-term holders, Ripple employees who received XRP as compensation, and investors who held through the lawsuit and received ecosystem airdrops like Flare (FLR) and Songbird (SGB). Here is how XRP is taxed in 2026 and where the genuine uncertainties lie.

The foundation: XRP is property

XRP is treated as property for U.S. federal income tax purposes under IRS Notice 2014-21, the same foundational guidance that governs Bitcoin, Ethereum, and all other cryptocurrencies.¹ Every disposal of XRP generates a capital gain or loss equal to the proceeds received minus your adjusted cost basis in the units disposed of. A "disposal" includes:

Selling XRP for U.S. dollars or stablecoins
Trading XRP for another cryptocurrency (including on the XRPL DEX)
Spending XRP to pay for goods or services
Using XRP as collateral that is subsequently liquidated
Transferring XRP to a new wallet you control (not taxable — not a disposal)

The holding period determines the rate. XRP held more than 12 months qualifies for long-term capital gains treatment (0%, 15%, or 20% federal). XRP held 12 months or less is short-term — taxed at ordinary income rates up to 37% federal. For investors who bought XRP years before the SEC case and are now considering selling, the 12-month threshold is almost certainly crossed on the bulk of their position — the rate differential on a $500,000 XRP gain between short- and long-term treatment can exceed $65,000 in federal tax alone.

The SEC case: what it does and does not mean for your taxes

In December 2020, the SEC sued Ripple Labs, arguing that XRP was an unregistered security. In July 2023, U.S. District Judge Analisa Torres issued a split ruling: XRP sold programmatically to retail buyers on public exchanges was not a security; XRP sold to institutional investors was. The case continued through appeals until August 7, 2025, when the SEC and Ripple jointly dismissed their remaining appeals, ending the five-year dispute. Ripple paid a $50 million settlement (reduced from the $125 million originally ordered).²

Tax consequences of the SEC case for XRP holders:

The lawsuit itself was not a taxable event. Holding XRP through the litigation, regardless of price movements, created no gain, loss, income, or deduction for retail investors.
The settlement was not a taxable event for holders. Ripple paid the settlement; XRP holders were not parties to the case. No income or loss flows through to individual XRP holders from the resolution.
The security classification question does not change how XRP gains are taxed. Whether XRP is or is not a security under securities law is a separate question from its treatment as property under the Internal Revenue Code. Notice 2014-21 applies regardless of how the SEC classifies the asset.
Ripple employees who received XRP as compensation had ordinary income at the fair market value on the date the tokens vested or were transferred to them — regardless of the SEC litigation. Those employees' subsequent sales of XRP are capital gain or loss from their compensation basis, not from the SEC settlement.

The practical takeaway: the end of SEC litigation removes regulatory uncertainty and may affect XRP's price, but it does not create any new tax obligation for investors who simply held XRP through the case. The tax analysis starts fresh from your actual acquisition date and cost basis.

Calculating your XRP gain or loss

Your capital gain or loss on an XRP disposal is: proceeds minus adjusted cost basis. This sounds simple but creates three common problems for XRP holders:

Cost basis from exchange purchases

Most XRP investors bought through Coinbase, Kraken, Bitstamp, or other centralized exchanges. For purchases through these platforms, cost basis is the USD amount you paid including any exchange fees. Beginning with tax year 2025 (reported in early 2026), centralized exchanges are required to issue Form 1099-DA showing gross proceeds from XRP disposals. The cost basis column (Box 9) may show as "noncovered" on your 2025 form if your XRP was acquired before the exchange began tracking covered securities — meaning you are responsible for providing your own basis documentation. See the Form 1099-DA guide for a full breakdown.

Cost basis from early acquisitions and transfers

Many long-term XRP holders acquired their position across multiple exchanges over several years and have moved coins between wallets, exchanges, and self-custody. Each transfer is not a disposal, but the cost basis and holding period must travel with the coins. If XRP was moved from Bittrex (which shut down in 2023) or another defunct exchange, you must reconstruct basis from old transaction records, bank statements, or email confirmations. A crypto tax CPA can assist with basis reconstruction for complex histories.

Lot selection: FIFO vs. specific identification

When you sell part of your XRP position, the IRS default is FIFO (first-in, first-out) unless you affirmatively designate specific lots before the sale. Specific identification — choosing which XRP units to sell — can significantly reduce your tax liability if you have both high-basis and low-basis lots. This election must be made at the time of the sale, documented in writing, and consistently applied. If you have a large XRP position acquired across multiple price points, discussing lot selection with a crypto-aware CPA before any significant sale is one of the most concrete steps you can take.

XRPL DEX: on-ledger trading and disposals

The XRP Ledger has a built-in decentralized exchange — one of the oldest in the crypto ecosystem — that allows peer-to-peer token trading using offers placed directly on-chain. Trading any token for XRP, or XRP for any XRPL-issued token (stablecoins like RLUSD, other assets), is a taxable disposal of the sold asset at its fair market value on the transaction date.

Common XRPL DEX scenarios:

Selling XRP for RLUSD: Taxable disposal of XRP. Proceeds equal RLUSD received at face value (1:1 to USD). Capital gain or loss is proceeds minus XRP basis.
Trading XRP for another XRPL-issued token: Taxable disposal of XRP. Proceeds equal the FMV of the token received on the trade date. The received token acquires a basis equal to that FMV.
Placing an offer that executes later: Income is recognized at execution, not when the offer was placed. The execution date is the disposal date.

Transaction fees on the XRPL (the "reserve burn" and per-transaction fee in XRP) are treated as disposals of the XRP fee amount at current FMV, generating a capital event in each transaction. These amounts are typically very small (fractions of a cent per transaction) but should technically be tracked. High-volume XRPL traders may have thousands of these micro-events.

XRPL AMM: automated market making on the XRP Ledger

The XRP Ledger launched a native automated market maker (AMM) protocol in early 2024, allowing users to deposit token pairs into liquidity pools and earn trading fees. The XRPL AMM follows the same general tax framework as Ethereum-based AMMs like Uniswap, with the key open questions being the same:

Action	Likely tax treatment	Uncertainty
Depositing XRP and another token into an AMM pool	Conservative: taxable exchange of both deposited assets at FMV; LP token acquired at combined FMV as basis	No IRS guidance specific to XRPL AMM; same open question as Uniswap deposits
Trading fees earned inside the pool	Ordinary income as accrued, or at withdrawal — debated	Rev. Rul. 2023-14's dominion-and-control standard may apply; no ruling on AMM-specific fee treatment
Withdrawing from the AMM pool	Disposal of LP position; received tokens acquired at FMV on withdrawal date	Low uncertainty on the withdrawal event itself
Impermanent loss	Not deductible as its own event; reflected in the capital gain/loss on withdrawal (actual proceeds vs. basis)	Same as all crypto AMMs

XRPL AMM participation is an emerging area with no IRS guidance specific to the XRP Ledger's implementation. Discuss your position with a CPA before making material AMM deposits if your XRP has significant embedded gain.

Flare Network (FLR) airdrop: the uncertain case

In January 2023, Flare Network distributed 15% of the total FLR token allocation to XRP holders who were eligible as of December 12, 2020 (the snapshot date). The remaining 85% was distributed over time under a modified schedule tied to staking and token wrapping participation. Flare is a separate blockchain from the XRP Ledger — it was designed as an EVM-compatible smart contract layer that uses XRP Ledger's assets.

The FLR airdrop tax debate:

There are two positions on whether FLR airdrops were taxable income under U.S. law at distribution:

Position 1 — Ordinary income (IRS default): IRS Revenue Ruling 2019-24 provides that airdropped tokens are ordinary income at FMV when the taxpayer gains dominion and control.³ Applied literally, each FLR distribution was income at the FMV of FLR on the distribution date. This is the conservative, lower-audit-risk position.

Position 2 — Not a taxable event (some practitioners): Revenue Ruling 2019-24 addresses hard forks that produce new coins on the same blockchain. Flare is a separate network that made a business decision to reward XRP holders — it is not a hard fork of the XRP Ledger, and XRP holders did not take any action to create the new tokens. Some practitioners argue that receiving unsolicited tokens that arose from a third party's business decision, where the recipient had no input, does not establish "dominion and control" sufficient to trigger income recognition. No IRS ruling has specifically addressed this argument.

Which position you adopt should be documented in writing with your CPA before you file (or file an amended return). If you have already sold FLR tokens and did not recognize income at distribution, there is a basis question: if the conservative position applies, your sale proceeds should be reduced by the ordinary income already recognized — but if you did not recognize the income, your basis is zero and the full proceeds are capital gain.

FLR had significant price volatility — it launched at roughly $0.038 and fell substantially through 2023. For many recipients, even under the taxable-at-distribution position, the income event may be modest. The more significant planning issue is ensuring your basis is correctly documented in your tax software before reporting any FLR sales.

Songbird (SGB): the canary network airdrop

In September 2021, Flare Labs distributed Songbird (SGB) tokens to XRP holders as a "canary network" — a test network with real tokens that preceded the Flare mainnet launch. The tax treatment of the SGB distribution faces the same analysis as FLR: either ordinary income under Rev. Rul. 2019-24 (conservative position) or potentially not a taxable event (aggressive position, not IRS-confirmed). SGB traded at prices ranging from $0.20 to below $0.02 through 2022–2023, so many recipients may have received income (under the conservative view) from a token whose value subsequently declined significantly. Capital losses on SGB sales may be available if you recognized income at distribution at a higher FMV than your eventual sale proceeds.

XRP received as compensation or from Ripple grants

Ripple Labs distributed billions of XRP to its founders, early employees, and ecosystem development partners. If you received XRP as employment compensation, a contractor payment, or a grant from Ripple Labs:

XRP received as compensation is ordinary income at the FMV on the date of receipt (or the date the tokens vested, if subject to a vesting schedule). This income should have been reported on your W-2 (for employees) or 1099-NEC (for contractors) for the year of receipt.
Your cost basis in those XRP tokens equals the amount included as ordinary income. If you paid $0 for the XRP but recognized $50,000 of W-2 income on receipt, your basis is $50,000.
Subsequent appreciation from that basis is capital gain — short-term if you sell within 12 months of receipt, long-term if you hold longer.
Section 83(b) elections for unvested tokens: If Ripple or another token-issuing entity granted XRP subject to vesting or forfeiture risk, a timely § 83(b) election (within 30 days of grant) could lock in ordinary income at grant-date value rather than vesting-date value — the same planning issue covered in detail in the token vesting taxes guide.

2026 federal capital gains rates on XRP

XRP gains follow the same federal schedule as all crypto property. For 2026, after subtracting the standard deduction ($16,100 single / $32,200 married filing jointly):⁴

Rate	Single filer (taxable income)	Married filing jointly
0% LTCG	Up to $49,450	Up to $98,900
15% LTCG	$49,451 – $545,500	$98,901 – $613,700
20% LTCG	Above $545,500	Above $613,700
NIIT (+3.8%)	MAGI above $200,000	MAGI above $250,000

The combined top federal rate on long-term XRP gains is 23.8%. California adds up to 13.3% (no preferential LTCG rate), pushing combined federal-plus-state rates near 37%. Texas, Florida, and Nevada have no state income tax — 23.8% federal only.

Short-term gains on XRP held 12 months or less are ordinary income — up to 37% federal, plus NIIT on investment income above the threshold, plus state. If you have large short-term XRP lots approaching the 12-month mark, waiting to cross the long-term threshold before selling is typically the single most valuable timing decision available.

Planning strategies for XRP holders

Reconstruct your basis before selling. Long-term XRP holders often have partial records spread across defunct exchanges (Bittrex, FTX), Ledger wallets, Uphold accounts, and multiple Coinbase histories. Complete basis reconstruction before any major XRP sale — missing basis means the IRS defaults to zero, treating the entire proceeds as gain. A crypto tax CPA can work through exchange export files and wallet transaction histories.
Document your FLR and SGB positions in writing. Before filing a return that includes FLR or SGB activity, decide which position you adopt (ordinary income at distribution vs. not taxable at distribution), write it down, discuss it with your CPA, and apply it consistently. Inconsistent treatment — reporting FLR sales without any discussion of the income recognition question — is harder to defend than a clear, documented position on either side.
Use specific lot identification to select the right XRP units before selling. If you hold XRP from purchases at $0.25 in 2017, $0.30 in 2020, and $2.00 in 2021, the tax result of a $0.60/XRP sale differs dramatically depending on which lot you designate. This selection must be documented before the trade, not after. Set it up in your tax software or with your CPA before the first material XRP disposal.
Model bracket headroom before year-end XRP sales. If your ordinary income is below the 0% LTCG threshold, some XRP gains may be completely tax-free at the federal level — see the crypto bracket calculator for your 2026 numbers. Systematically harvesting gains in low-income years is a real strategy for XRP holders who are not yet in a high-income bracket.
Consider donating highly appreciated XRP directly to a DAF. XRP acquired in 2017–2020 at fractions of current prices carries enormous embedded gain. Donating long-held XRP directly to a donor-advised fund eliminates the capital gains tax entirely and generates a charitable deduction at FMV. See the crypto charitable giving guide for the full analysis.
Plan multi-year liquidation sequencing if selling a large position. A single-year XRP sale that pushes taxable income into the 20% LTCG + NIIT zone (above $613,700 MFJ) may be more expensive than spreading equivalent proceeds across two or three calendar years at the 15% bracket. The difference on a $2 million XRP position can exceed $100,000 in federal tax. A fee-only advisor can model the multi-year sequence before you commit to a sale timeline.

Form 1099-DA and XRP reporting in 2026

For tax year 2025 disposals (reported on forms sent in early 2026), centralized exchanges including Coinbase, Kraken, and Bitstamp are required to issue Form 1099-DA reporting XRP sales with gross proceeds.⁵ The IRS will match this data against your Schedule D and Form 8949. Key issues for XRP holders:

Cost basis (Box 9) may show as noncovered for XRP acquired before your exchange began tracking covered-security basis. This means you must provide your own basis; the exchange is only reporting proceeds.
Transfers may be misreported as sales. Moving XRP from one exchange to another, or to a self-custody wallet, is not a disposal — but exchanges may issue a 1099-DA form showing the outbound transfer as a gross-proceeds event. Reconcile carefully against your own records.
XRPL DEX activity is not covered. Trades executed directly on the XRP Ledger's native DEX or AMM are not covered by 1099-DA reporting. These are your responsibility to self-report.

If your 1099-DA shows proceeds that do not match your records, do not simply accept the form as filed. Work with a CPA to reconcile every line against your actual transaction history before filing Form 8949.

When to bring in a crypto-aware financial advisor

A fee-only advisor who works with XRP holders connects the tax complexity to the broader financial plan: multi-year liquidation sequencing, lot selection strategy, FLR/SGB basis documentation, charitable giving analysis, and estate planning for a large XRP position.

The conversation usually makes sense when:

XRP holdings exceed $250,000 and a significant sale is within 24 months
A complex basis situation — multiple defunct exchanges, years of transfers between wallets, or missing records — requires reconstruction before any sale
Flare (FLR) or Songbird (SGB) distributions have not been documented and the tax position has not been decided
Multi-year liquidation sequencing across two or more calendar years could materially reduce the tax bill
Estate planning for XRP wallet access — seed phrase inheritance, custody designation, or trust structure — needs to be integrated into the financial plan

Tax savings from optimal lot selection and multi-year sequencing on a seven-figure XRP position regularly exceed a financial advisor's annual fee. Basis reconstruction errors and undocumented airdrop positions are among the most common triggers for IRS correspondence on crypto returns.

Get matched with a crypto-aware financial advisor

Tell us about your XRP position — size, where it's held, whether you've received FLR or SGB airdrops, and what decision is in front of you. We will match you with a fee-only advisor who has worked with XRP-specific planning problems: basis reconstruction, airdrop income documentation, multi-year sale sequencing, and digital-asset estate planning.

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IRS, Notice 2014-21 — virtual currency treated as property for federal income tax purposes; general tax principles applicable to property transactions apply to XRP and all other cryptocurrencies.
CoinDesk, SEC's Long-Running Case Against Ripple Officially Over (August 7, 2025) — the SEC and Ripple jointly dismissed their remaining appeals; Ripple paid a $50 million settlement; the five-year case is closed. The resolution was not a taxable event for XRP holders.
IRS, Revenue Ruling 2019-24 (2019-44 IRB) — airdropped cryptocurrency is ordinary income at FMV when taxpayer gains dominion and control; governs the conservative tax position on FLR and SGB distributions to XRP holders. Whether this ruling applies to Flare tokens distributed by a separate blockchain project — rather than a hard fork of the XRP Ledger itself — is a contested question among crypto tax practitioners.
IRS Rev. Proc. 2025-32 / Tax Foundation, 2026 Federal Capital Gains Rates and Brackets — 2026 LTCG brackets: 0% to $49,450 single / $98,900 MFJ; 15% to $545,500 / $613,700; 20% above; standard deduction $16,100 single / $32,200 MFJ; NIIT 3.8% at MAGI above $200,000 / $250,000.
IRS, Digital Asset Broker Reporting — Form 1099-DA requirements effective for tax year 2025 reporting; covers centralized exchange XRP disposals; XRPL DEX and AMM activity not covered pending further rulemaking.

Tax values verified June 2026 against IRS Rev. Proc. 2025-32. The SEC-Ripple case timeline is based on publicly available court filings; the resolution was not a taxable event for retail XRP holders under the Internal Revenue Code. The tax treatment of Flare (FLR) and Songbird (SGB) distributions to XRP holders is an open question in crypto tax practice — both positions described reflect actual practitioner debate and neither has been definitively resolved by IRS guidance. Consult a crypto tax CPA before filing returns that include FLR or SGB activity.