Illinois has released draft regulations that flesh out the state's 0.2% digital asset tax, outlining how the levy could apply to stablecoins, decentralized finance (DeFi) platforms, blockchain bridges and transfers involving self-custody wallets. The Illinois Department of Revenue published the draft on Sept. 28 and is accepting public comments through Oct. 30, according to its digital asset tax page. The rules remain preliminary and have not yet entered the formal rulemaking process.

For crypto users and digital asset businesses in Illinois, the draft details which everyday activities, from paying protocol fees to moving funds into self-custody wallets, could carry a tax obligation under the law.

Stablecoins and DeFi Fees

Under the proposal, stablecoins are explicitly classified as digital assets covered by the law, meaning transactions involving them can fall within the tax when tied to taxable digital asset business activity.

The draft also separates DeFi fees into distinct categories. Transactions on decentralized platforms generally would not be taxable unless they involve valuable consideration. Fees paid solely to liquidity providers would not count as taxable consideration, and blockchain network fees paid to miners or validators would also be excluded. By contrast, protocol fees charged for operating or maintaining a DeFi platform could trigger the tax.

That distinction could matter for users who frequently interact with decentralized exchanges and other on-chain protocols.

Bridges and Self-Custody Transfers

The draft treats bridging as an exchange when digital assets move from one blockchain network to another. It also covers certain wallet-to-wallet transfers when a digital asset broker performs the transaction for a fee. For example, moving assets from a centralized exchange into a self-custody wallet could be taxable if the exchange facilitates the transfer for consideration.

A direct peer-to-peer transfer between two independently controlled wallets, by contrast, would not be taxable when no broker provides the service for valuable consideration.

The proposal also states that storage can create a taxable event when a customer specifically pays for custody, though storage bundled with an exchange or transfer would generally produce only one taxable event.

Timeline and Next Steps

The underlying law takes effect Jan. 1, 2027, with the tax calculated at 0.2% of the value of the digital asset involved. The draft rules additionally address valuation, sourcing and broker responsibilities. Illinois officials are seeking feedback before the rules advance through formal review. The measure has also faced legal challenges from cryptocurrency industry groups. How the department weighs public input, when the draft enters formal rulemaking, and how the legal challenges unfold are the main milestones to watch between now and the law's Jan. 1, 2027, effective date.