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Discussions around how the government could tax $XRP investments have emerged after the SEC and CFTC officially declared $XRP a commodity.
These discussions dominated the $XRP community following a disclosure from Chad Steingraber, a well-known community commentator. Steingraber called attention to the recent commodity classification and then shared how the Internal Revenue Service (IRS) taxes commodities.
Key Points
- The SEC and CFTC jointly named $XRP a digital commodity through a recent interpretive release that also included Bitcoin, Ether, Cardano, and Solana, among others.
- Following the release, discussions around how the government could now tax $XRP have emerged, with some commentators pointing to commodity tax rules.
- Per the rules, commodity futures contracts generally follow a 60/40 tax rule, while physical commodities like gold face a maximum 28% collectible tax rate.
- Despite the commodity label, $XRP spot holders still fall under IRS Notice 2014-21, which treats digital assets as property subject to standard capital gains rates of 0%, 15%, or 20% for long-term holdings.
- The 60/40 rule and mark-to-market requirements only apply to $XRP holders trading actual crypto futures or options under Section 1256, not to those holding spot $XRP.
SEC and CFTC Officially Call $XRP a Commodity
Steingraber highlighted these rules as the $XRP community assesses the implications of the recent classification. Specifically, on March 17, the SEC and the CFTC jointly released an interpretive document officially naming $XRP a digital commodity and confirming it is not a security.
The release placed $XRP in the same category as Bitcoin, Ether, Avalanche, Solana, Stellar Lumens, Cardano, and 12 other digital assets, all formally recognized as digital commodities under U.S. law. For $XRP, this was a long-awaited moment of regulatory clarity from the highest levels of U.S. financial oversight.
The two agencies defined digital commodities as assets connected to functional, decentralized networks, like the $XRP Ledger, whose value comes from supply, demand, and network activity rather than from anyone’s managerial efforts, as measured by the Howey test.
Under the definition, these assets fall under CFTC oversight as commodities per the Commodity Exchange Act. Secondary market spot trading falls primarily under CFTC regulation, while the SEC keeps authority over primary issuance where relevant.
The March 17 classification followed a March 11 MoU between the SEC and CFTC, through which the two agencies launched a “Joint Harmonization Initiative” to align their enforcement actions, asset classification systems, and rulemaking processes.
How Commodity Taxation Works
After the official classification, Chad Steingraber shared how U.S. tax rules generally treat commodities, in an attempt to give $XRP holders a starting point for thinking about their tax situation.
Steingraber explained that the tax system generally treats commodities as capital assets. He also mentioned that futures contracts often adhere to a 60/40 allocation, with 60% of profits treated as long-term capital gains and the remaining 40% as short-term capital gains.
Meanwhile, for physical commodities like gold and silver, he added, the tax rate on long-term gains can reach as high as 28% because the IRS treats them as collectibles.
Further, ETFs that hold futures contracts typically follow the 60/40 rule and report income using Form K-1, while ETFs holding physical commodities face long-term gains taxed at the 28% collectible rate. However, the IRS treats ETNs as debt instruments, so short-term gains count as ordinary income and long-term gains as capital gains.
Steingraber also pointed out that futures traders must report unrealized gains and losses at year-end through a mark-to-market requirement, and that, in most cases, capital losses can reduce up to $3,000 of ordinary income each year, with any remaining losses carried into future tax years.
Important Caveats $XRP Holders Should Note
While Steingraber’s general overview of U.S. commodity tax rules is accurate, there are important details to keep in mind before applying those rules directly to $XRP and the other 15 digital assets named in the release. First, the IRS has not changed how it treats cryptocurrency as a result of the new SEC and CFTC classification.
All 16 digital assets named in the interpretive release, including $XRP, still count as property under IRS Notice 2014-21. This means that selling or exchanging spot holdings triggers standard capital gains or losses, such as long-term rates of 0%, 15%, or 20% for assets held more than one year, and short-term gains taxed at ordinary income rates.
While Steingraber merely presented the information as a general picture of how commodity taxation works, placing the tax explanation right after naming these digital assets does create a risk that some readers might assume the rules apply directly to their $XRP holdings.
In practice, spot $XRP does not automatically fall under the 60/40 rule or mark-to-market requirements, as they only apply if a holder trades actual crypto futures or options under Section 1256 of the tax code. The 28% collectible rate also does not apply to spot $XRP, and most spot crypto holdings do not qualify for trader tax status under Section 475.
Spot Bitcoin and Ethereum grantor trusts, such as IBIT, face taxation as property, not under commodity tax rules, while futures-based crypto ETFs do follow the 60/40 and K-1 treatment Steingraber described. Most importantly, the new SEC and CFTC classification has no direct effect on how the IRS taxes these assets.