I have a couple questions relating to “yield farming” Dapps and taxation.
I’ve been holding my crypto for over a year and have recently started swing trading a small portion of it, never more than 1/3. I’d like to use a LIFO method for my capital gains calculation so that when I eventually sell all my crypto, 2/3 of it will be taxed as long term gains.
I’d like to move some coins into a defi dapp like Aave to earn interest while holding. If I move 1/3 of my coins onto that platform, will capital gains calculations consider that an “Out” event in the logic of LIFO? That is, will that deposit be seen as the 1/3 I used for trading or can it be counted as some of my long term hold coins? I’d like to be able to deposit 1/3 from my long term held coins into Aave to earn interest while continuing to trade with my 1/3 that now register as short term holds.
I’m also curious if anyone knows how yield farming is considered by US tax law. When you send your funds to a Dapp smart contract like with Aave, it’s probably not considered you moving funds between two of your own wallets, which is untaxed. So is it considered a sale? or a gift? By depositing into a defi app is that a taxable even or are you merely taxed on the interest you make?