DeFi introduces tax events that traditional crypto investors never face. The IRS treats most DeFi interactions as dispositions or income events, even when no fiat changes hands.

Liquidity provision: Depositing into an AMM pool is generally not taxable, but receiving LP tokens may be. Withdrawing and impermanent loss realization is taxable.
Yield farming: Reward tokens are ordinary income at FMV on receipt. Selling them later triggers capital gain/loss.
Wrapping (e.g., ETH → wETH): IRS has not ruled definitively; conservative position treats it as non-taxable (same asset), aggressive position treats it as a swap.
Bridges: Cross-chain bridges may be treated as disposals if the wrapped asset is considered a different token.
Liquidations: Forced liquidation of collateral is a taxable disposition — often at a loss.

DeFi Action	Tax Treatment	Form
Provide liquidity	Generally non-taxable deposit	—
Earn farm rewards	Ordinary income at FMV	Schedule 1
Swap tokens	Capital gain/loss	8949 / Sch D
Liquidation	Capital gain/loss	8949 / Sch D