How Crypto Asset Bridging Works — And What It Means for Your Taxes

Key Takeaways:

• Bridging crypto between blockchains is not tax-free — it's often seen as a taxable event.

• On-chain records show two distinct events: a sale on Ethereum and a purchase on Solana.

• Treat these as separate transactions for accurate cost basis and tax reporting.

• Misreporting can lead to IRS audits, especially with complex DeFi and cross-chain activity.
  
  

Understanding cryptocurrency can be challenging, particularly when it comes to bridging assets. 

Many crypto enthusiasts purchase tokens on the Ethereum blockchain and move these assets over to other blockchains like Solana for various reasons, such as lower transaction costs.

How Do Crypto Bridging Methods Work?

There are multiple ways to bridge assets. 

One method involves wrapping the current asset, but a more popular approach is using automated market makers. 

In this scenario, the market makers take possession of the asset on Ethereum and deliver an equivalent asset on Solana.

Is Bridging Crypto a Taxable Event?

As a taxpayer, you might think that you simply moved the asset over using a bridging service. 

However, the transaction has more layers. 

On the ledger, you will see that you the asset as sold on Ethereum and a different asset purchased on Solana. 

Your perceived single transaction is actually two.

How Does Crypto Bridging Affect Your Cost Basis?

If viewed from your perspective, the cost basis would be the price you bought it for on Ethereum and the sale price would be what you sell it for on Solana. 

However, blockchain transactions are not that straightforward.

 Auditors will see that you sold your Ethereum asset and then received an equivalent asset on Solana.

Why the IRS Sees Two Transactions When You Bridge Assets

These events mean your cost basis is the value when the asset was moved to Solana. 

Any gains or losses are realized when you sell the Solana asset. 

Therefore, for tax calculations, consider both transactions separately. This method ensures accurate gain or loss calculation.

Breaking the transaction into two can cause differences in the holding period if one is expecting to claim long-term gain tax rates.

What’s the Smart Way to Handle Bridging on Your Tax Return?

Ultimately, you are taxed on the realized gains and losses from these transactions. 

To simplify, always focus on the transactions as they are recorded in the blockchain.

Get Professional Help

If you regularly engage in complex transactions, consider contacting us at CryptoTaxAudit.com. We specialize in intricate gain calculations and offer fixed pricing, ensuring you pay the correct amount of taxes—no more, no less.

Remember, this post is for informational purposes and not legal advice. For personal tax situations, contact us today!

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FAQ: Crypto Asset Bridging & Taxation 

Still have questions? You're not alone. Here are some common questions we get at CryptoTaxAudit about bridging crypto:

Q: What is bridging in crypto, and why does it matter for taxes?
A: What is bridging in crypto, and why does it matter for taxes? Bridging refers to moving crypto assets from one blockchain to another — for example, from Ethereum to Solana. For tax purposes, this often looks like two transactions: a sale and a purchase, which could create taxable gains or losses.

Q: Does the IRS really treat bridging as a taxable event?
A: Does the IRS really treat bridging as a taxable event? Yes, in many cases. Even if you think you're just moving your tokens, the IRS may view it as disposing of one asset and acquiring another. This triggers capital gains or losses, especially if the value has changed.

Q: How do I report cost basis if I bridged my crypto?
A: How do I report cost basis if I bridged my crypto? You'll need to treat it like a two-step event: record the fair market value at the time the asset left Ethereum (sale), and use that same value as your cost basis on Solana (purchase). CryptoTaxAudit helps calculate this properly.

Q: Can CryptoTaxAudit help if I already bridged and didn’t report it?
A: Can CryptoTaxAudit help if I already bridged and didn’t report it? Absolutely. We specialize in reconstructing blockchain histories, fixing past returns, and protecting clients from penalties. We’ll make sure you’re compliant and audit-ready.