Crypto Perpetual Futures Taxes: How Perps & Derivatives Are Taxed

Perpetual futures have become one of the most popular ways to trade cryptocurrency. Platforms like dYdX, GMX, and Gains Network now handle billions of dollars in daily volume, giving traders leverage, short-selling capabilities, and sophisticated risk management tools previously only available in traditional finance.

But with great trading power comes great tax complexity. Crypto derivatives present unique tax challenges that catch many traders off guard. Unlike simple spot trading, perpetual futures involve funding rates, liquidations, margin calculations, and contract mechanics that all have distinct tax implications.

In this comprehensive guide, we’ll break down exactly how perpetual futures and other crypto derivatives are taxed, what you need to track, and how to report everything correctly to the IRS.

What Are Perpetual Futures and How Do They Work?

Before diving into taxes, let’s establish what perpetual futures actually are and why they’re different from traditional futures contracts.

Traditional Futures vs. Perpetual Futures

Traditional futures contracts have an expiration date. When you buy a Bitcoin futures contract expiring in March, you’re agreeing to buy or sell Bitcoin at a set price on that specific date. At expiration, the contract settles.

Perpetual futures (or “perps”) have no expiration date. They track the underlying asset’s price indefinitely through a mechanism called the funding rate. This makes them simpler for retail traders who don’t want to worry about contract rollovers.

The Funding Rate Mechanism

The funding rate is what keeps perpetual futures prices aligned with the spot market. It’s a periodic payment between long and short traders:

• When perps trade above spot price: Longs pay shorts (positive funding)
• When perps trade below spot price: Shorts pay longs (negative funding)

These payments typically occur every 8 hours and can be significant during volatile markets. Funding rates are a critical tax consideration we’ll address in detail.

Leverage and Margin

Perpetual futures allow traders to use leverage, controlling larger positions with less capital:

• 10x leverage means $1,000 controls $10,000 worth of exposure
• Cross-margin uses your entire account balance as collateral
• Isolated margin limits risk to a specific position’s margin

Understanding these mechanics matters for tax purposes because they affect how profits, losses, and liquidations are calculated.

Awaken Tax supports comprehensive derivatives tracking across major perps platforms. Get started free and see how it handles your trading activity.

Tax Treatment of Futures Profits and Losses

Now for the critical question: how are your perpetual futures gains and losses actually taxed?

General Rule: Capital Gains Treatment

In the United States, profits from cryptocurrency perpetual futures are generally treated as capital gains. When you close a position for a profit, you have a taxable gain. When you close for a loss, you have a deductible loss.

Example:

• You open a long BTC-PERP position at $40,000
• You close the position when BTC is at $45,000
• Your gain of $5,000 (minus fees) is a capital gain

Short-Term vs. Long-Term Rates

The holding period determines your tax rate:

Short-term capital gains (held less than 1 year):

• Taxed at ordinary income rates
• Up to 37% for high earners

Long-term capital gains (held more than 1 year):

• Taxed at preferential rates: 0%, 15%, or 20%
• Depends on your total taxable income

Important reality check: Most perpetual futures positions are held for days, hours, or even minutes. This means the vast majority of perps trading profits are short-term capital gains, taxed at your ordinary income rate.

Netting Gains and Losses

You can offset capital gains with capital losses:

• First, net short-term gains against short-term losses
• Then, net long-term gains against long-term losses
• Finally, net any remaining gains against the opposite category

If you have net capital losses exceeding gains, you can deduct up to $3,000 against ordinary income per year. Remaining losses carry forward to future years.

Section 1256 Contracts: The 60/40 Rule

Here’s where crypto futures taxation gets complicated. Traditional futures contracts traded on regulated exchanges qualify for special tax treatment under IRC Section 1256.

What Is Section 1256 Treatment?

Section 1256 contracts receive favorable tax treatment:

• 60% long-term capital gains (regardless of holding period)
• 40% short-term capital gains

This blended rate can significantly reduce taxes for profitable traders. Instead of paying up to 37% on short-term gains, you’d pay a maximum blended rate of approximately 26.8%.

Do Crypto Perpetual Futures Qualify?

The short answer: probably not.

Section 1256 specifically covers:

• Regulated futures contracts traded on domestic exchanges
• Foreign currency contracts
• Nonequity options
• Dealer equity options

Crypto perpetual futures traded on platforms like dYdX, GMX, or even Binance futures don’t meet these requirements because:

1. No regulated exchange: These platforms aren’t CFTC-regulated futures exchanges
2. Perpetual structure: The IRS has never ruled that perpetual contracts qualify
3. Crypto underlying: There’s no clear guidance that crypto-based contracts qualify

CME Bitcoin Futures

Bitcoin futures traded on the Chicago Mercantile Exchange (CME) are a different story. These do qualify for Section 1256 treatment because CME is a regulated futures exchange.

If you trade CME Bitcoin futures through a traditional brokerage, you’ll receive a 1099-B with Section 1256 treatment applied. The 60/40 split will be calculated automatically.

Conservative Approach for Crypto Perps

Given the regulatory uncertainty, most tax professionals recommend treating crypto perpetual futures as regular capital gains transactions, not Section 1256 contracts. This means:

• All gains taxed based on actual holding period
• Most will be short-term (ordinary income rates)
• No automatic 60/40 split

Some aggressive positions exist arguing for Section 1256 treatment, but these carry audit risk. Consult with a crypto-specialized tax professional if you want to explore this approach.

Funding Rate Payments: How They’re Taxed

Funding rates are unique to perpetual futures and create ongoing taxable events throughout your position’s life.

Receiving Funding Payments

When you receive funding (either as a long when funding is negative, or as a short when funding is positive):

Tax treatment: These payments are generally treated as ordinary income, not capital gains.

Why ordinary income? Funding payments are more like interest or fees rather than appreciation of a capital asset. You’re being compensated for providing a service to the market (absorbing the other side’s demand imbalance).

Example:

• You hold a short position for 30 days
• You receive $500 in cumulative funding payments
• Report $500 as ordinary income

Paying Funding Rates

When you pay funding:

Tax treatment: This gets complicated. Funding payments aren’t clearly deductible as investment interest because they’re not technically interest on a loan.

Two possible approaches:

1. Reduce your proceeds: Treat funding paid as a cost that reduces your net gain (or increases your loss) when you close the position

2. Investment expense: Treat as a miscellaneous investment expense (though these are currently non-deductible for individuals through 2025 under the TCJA)

Practical recommendation: Most traders reduce their net proceeds by the funding paid. This effectively makes funding costs deductible against your trading gains.

Tracking Funding Payments

Funding payments can occur every 8 hours. Active traders may have hundreds or thousands of funding transactions per year. Manual tracking is virtually impossible.

Awaken Tax automatically imports and categorizes funding payments from supported derivatives platforms. This alone saves hours of manual spreadsheet work.

Liquidations on Leveraged Positions

Liquidations are an unfortunate reality of leveraged trading. Understanding their tax treatment is essential because liquidations often happen during the worst possible time emotionally, and the last thing you want is surprise tax consequences.

What Happens in a Liquidation?

When your position’s losses approach your margin, the exchange forcibly closes your position to prevent further losses. In a liquidation:

• Your collateral is seized to cover losses
• You may lose your entire margin
• Additional liquidation fees often apply

Tax Treatment of Liquidations

A liquidation is a taxable event. You’re disposing of a position, just not voluntarily.

Calculating your loss:

• Proceeds: The value received from the liquidation (often zero or near-zero)
• Cost basis: Your original margin plus any additional margin added
• Loss: Cost basis minus proceeds

Example:

• You deposit $5,000 margin for a 10x long position
• Position gets liquidated
• You receive $200 back after fees
• Capital loss: $5,000 - $200 = $4,800

Partial Liquidations

Some platforms use partial liquidation to reduce position size rather than fully liquidating. Each partial liquidation is a separate taxable event.

Cross-Margin Liquidation Complexity

With cross-margin, your entire account balance serves as collateral. A liquidation might involve multiple positions being closed simultaneously. Each position closure is a separate capital gain or loss event.

Documentation is critical: Ensure you have records showing exactly what was liquidated, when, and at what prices. Platforms don’t always provide clear liquidation records.

Options Trading Tax Treatment

Beyond perpetual futures, many crypto traders also use options. Let’s cover how crypto options are taxed.

Buying Options

When you buy a crypto option (call or put):

If the option expires worthless:

• You have a capital loss equal to the premium paid
• The loss is realized on the expiration date
• Short-term or long-term depends on how long you held the option

If you exercise the option:

• The premium becomes part of your cost basis for the underlying asset
• No separate gain/loss on the option itself

If you sell the option before expiration:

• Capital gain or loss based on sale price vs. premium paid
• Holding period determines short-term vs. long-term

Selling (Writing) Options

When you sell/write options:

If the option expires worthless:

• The premium received is a short-term capital gain
• Taxable in the year of expiration

If the option is exercised:

• For covered calls: Premium added to sale proceeds of underlying
• For puts: Premium reduces cost basis of acquired asset

If you close the position early:

• Capital gain or loss based on closing price vs. premium received

Crypto Options Platforms

Popular crypto options platforms include:

• Deribit (largest Bitcoin options exchange)
• Opyn
• Ribbon Finance
• Various CEX offerings

Each platform handles reporting differently. Most don’t provide adequate tax documents, requiring you to export data and calculate taxes yourself or use specialized software.

Mark-to-Market Accounting

Some traders consider electing mark-to-market (MTM) accounting under IRC Section 475(f). This deserves serious consideration for active derivatives traders.

What Is Mark-to-Market?

Under MTM accounting:

• All positions are treated as sold at fair market value on the last day of the tax year
• All gains and losses are ordinary income/loss (not capital)
• No wash sale rules apply
• Losses are fully deductible (no $3,000 capital loss limit)

Benefits for Derivatives Traders

Full loss deduction: If you have $100,000 in trading losses, you can deduct the full amount against other income, not just $3,000 per year.

Wash sale avoidance: You can immediately re-enter positions without wash sale concerns.

Simplified accounting: Year-end mark eliminates carrying positions across tax years.

Drawbacks

No long-term capital gains: All gains are ordinary income, even on assets held over a year.

Timing mismatch: You pay taxes on unrealized gains that might reverse.

Irrevocable election: Once you elect MTM, you cannot go back without IRS permission.

How to Elect MTM

The election must be made by the due date of the tax return for the year before you want it to apply. For 2026, you’d need to elect by April 15, 2026, for it to apply to your 2026 trading.

Requirements:

• File Form 3115 with your tax return
• Attach a statement to your return identifying yourself as a trader
• Maintain contemporaneous records of your trading activity

Warning: The “trader” designation has specific IRS requirements around trading frequency, intent, and business activity. Consult a tax professional before making this election.

Cross-Margin vs. Isolated Margin: Tax Implications

The margin mode you choose affects how positions are tracked and reported.

Isolated Margin

With isolated margin:

• Each position has its own dedicated collateral
• Liquidation only affects that specific position
• Tax tracking is simpler one position, one cost basis

Tax approach: Track each position separately with its own entry price, margin, and exit.

Cross-Margin

With cross-margin:

• Your entire account balance is shared collateral
• Profitable positions can prevent liquidation of losing positions
• Multiple positions might be partially liquidated together

Tax complications:

• Realized P&L from one position might affect margin of others
• Liquidation might close multiple positions simultaneously
• Cost basis tracking becomes more complex

Practical Recommendation

From a tax tracking perspective, isolated margin is cleaner. However, if you use cross-margin for trading efficiency, ensure your platform provides detailed transaction records showing each position’s entry, exit, and realized P&L.

Awaken Tax handles both margin modes and automatically reconstructs your cost basis for each position, even across complex cross-margin scenarios.

Reporting Requirements

Understanding what forms to file and what records to keep is essential for staying compliant.

Form 8949

Your perpetual futures and options trades should be reported on Form 8949:

• Part I: Short-term transactions (held 1 year or less)
• Part II: Long-term transactions (held more than 1 year)

For each transaction, report:

• Description of property (e.g., “BTC-PERP”)
• Date acquired
• Date sold or disposed
• Proceeds
• Cost basis
• Gain or loss

Schedule D

Schedule D summarizes your Form 8949 and calculates your total capital gain or loss.

1099 Forms

Most crypto derivatives platforms don’t issue 1099 forms. You’re responsible for accurate self-reporting based on your transaction history.

Exception: If you trade CME Bitcoin futures through a traditional brokerage, you should receive a 1099-B.

Record-Keeping Requirements

The IRS requires you to maintain records substantiating your reported gains and losses. For derivatives trading, keep:

• Complete transaction history from each platform
• Entry and exit prices for each position
• Funding payments received and paid
• Liquidation records
• Margin deposits and withdrawals
• Platform fee records

Retention period: Keep records for at least 3 years after filing (longer if you have carryforward losses).

Platform-Specific Considerations

Different derivatives platforms handle reporting differently. Here’s what to know about major platforms.

dYdX

Platform type: Decentralized perpetual futures (currently on custom blockchain, previously on StarkEx)

Tax considerations:

• Fully on-chain transactions provide clear records
• Funding payments tracked on-chain
• No 1099 issued
• Export transaction history via UI or API

Awaken support: Yes, Awaken directly supports dYdX transaction import.

GMX

Platform type: Decentralized perpetual futures on Arbitrum and Avalanche

Tax considerations:

• Positions settled in GLP or specific tokens
• Price impact and fees affect realized P&L
• Funding/borrowing fees paid hourly
• All on-chain but complex mechanics

Unique GMX complexity: GMX uses a unique pool-based model where you’re trading against liquidity providers. Price execution, fees, and settlement require careful tracking.

Gains Network (gTrade)

Platform type: Decentralized perpetual futures on Polygon and Arbitrum

Tax considerations:

• Synthetic positions with oracle pricing
• Borrowing fees depend on utilization
• Limit orders and stop losses execute on-chain
• All on-chain records available

Centralized Exchanges (Binance, Bybit, OKX)

Platform type: Centralized perpetual futures

Tax considerations:

• Most provide downloadable transaction history
• Some provide tax reports (accuracy varies)
• Funding rates tracked in trade history
• US persons may be blocked from certain products

Warning: Using offshore exchanges as a US person for products not available in the US carries regulatory risk beyond just tax considerations.

Hyperliquid

Platform type: Decentralized perpetual futures on custom L1

Tax considerations:

• Fully on-chain order book
• Funding payments tracked on-chain
• Growing platform with increasing tax software support

Common Tax Mistakes with Crypto Derivatives

Avoid these frequent errors that trigger audits or result in overpaid taxes.

Mistake 1: Ignoring Funding Payments

Funding payments are taxable events. Failing to report income from received funding, or failing to account for paid funding, leads to incorrect tax calculations.

Mistake 2: Treating Perps as Section 1256

Claiming 60/40 treatment for crypto perpetual futures without proper basis is aggressive and may not survive audit scrutiny.

Mistake 3: Not Reporting Liquidations

A liquidation is still a taxable event. Just because you lost money doesn’t mean it doesn’t need to be reported. In fact, reporting the loss benefits you.

Mistake 4: Mixing Spot and Derivatives Positions

Keeping clear records separating spot holdings from derivatives positions is essential. They have different tax treatments and shouldn’t be conflated.

Mistake 5: Missing Platform Records

Platforms change, close, or restrict access. Export your complete transaction history regularly. Don’t assume you’ll be able to access it later.

Mistake 6: Ignoring Cross-Chain Activity

If you move funds between chains to trade on different platforms, those bridge transactions may have tax implications too.

Tax-Saving Strategies for Derivatives Traders

Tax-Loss Harvesting

Derivatives traders can harvest losses by closing losing positions before year-end. Since wash sale rules technically only apply to “stock or securities” (crypto’s status is unclear), you may be able to immediately re-enter similar positions.

Conservative approach: Wait at least 30 days to be safe, or enter a different but correlated position.

Strategic Position Timing

If you have positions with unrealized gains near year-end:

• Close before December 31 to realize gains this year
• Hold into next year to defer taxes by 12+ months

Cost Basis Method Optimization

Choosing the right cost basis method (FIFO, LIFO, HIFO, Specific ID) can significantly impact your tax bill. For derivatives with fungible margin, this can be complex but worthwhile.

Consider MTM Election

If you’re a high-volume trader with significant losses, mark-to-market election might allow full loss deduction. Run the numbers with a tax professional.

How Awaken Tax Handles Derivatives

Managing derivatives taxes manually is extremely difficult. The combination of high transaction volumes, funding payments, liquidations, and complex position mechanics makes spreadsheets inadequate.

Awaken Tax provides:

Automatic imports from major platforms:

• dYdX
• GMX
• Major centralized exchanges
• Growing protocol coverage

Complete transaction categorization:

• Position opens and closes
• Funding payments (received and paid)
• Liquidations
• Fees

Accurate cost basis:

• Proper handling of margin and leverage
• Per-position tracking
• Multiple accounting method support

IRS-compliant reports:

• Form 8949 generation
• Complete transaction records
• Audit-ready documentation

Speed and accuracy:

• Handles thousands of derivatives transactions
• Correctly calculates realized P&L
• Identifies funding income

Calculate Your Tax Liability

Before using dedicated tax software, you can estimate your crypto tax liability using our free crypto tax calculator. Input your gains and losses to see approximate federal and state taxes owed.

For a complete solution that handles the complexity of derivatives trading, perpetual futures, and all your other crypto activity, start your free trial with Awaken Tax.

Conclusion

Crypto perpetual futures and derivatives taxation is complex, but understanding the rules helps you report correctly and potentially reduce your tax burden.

Key takeaways:

1. Perps profits are capital gains, generally short-term due to brief holding periods
2. Section 1256 (60/40) treatment likely doesn’t apply to crypto perps
3. Funding payments are ordinary income when received
4. Liquidations are taxable events you can report the loss
5. Options have unique rules depending on outcome
6. Mark-to-market may benefit high-volume traders with losses
7. Record-keeping is essential export data from all platforms

The complexity of derivatives taxation makes specialized tax software essential. Manual tracking of funding payments, position P&L, and liquidations across multiple platforms is virtually impossible at scale.

Awaken Tax was built by crypto natives who understand derivatives trading. With support for major perps platforms, automatic funding rate tracking, and accurate position-level P&L calculation, it handles the complexity so you can focus on trading.

Ready to simplify your derivatives taxes? Get started with Awaken Tax free and see your complete trading history organized in minutes.

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