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There is some detail that may make this more clearly understood about the 'crypto interest incentive', language. 

When the Crypto is paid out to you and you have control (when it it transferred to your wallet) you should report it as income.

The amount of income you report will be that value of that Crypto when you get possession/control. This becomes your cost basis when, in the future, you trade or sell it. The difference will be a taxable event resulting in gain or loss for tax purposes. Our awesome Tax Expert @KrisD15 provides useful details to be able to grasp the concept.

Example:

If the value is 5, you report 5 other income

Now your "basis" is $5, if it is traded at $7, you have a $2 gain, if you sell at $3, you have a $2 loss. 

If you buy a $2.50 coffee with it and it's still worth $5, (so you only use half) nothing to report.

If you buy a $2.50 coffee with it and it's worth $10, you have a 2.50 gain (because it doubled in value) 

If you buy a $2.50 coffee with it and it's only worth $2,50, you have nothing to report. You can't claim a loss when using it for a purchase.

• Note: You COULD have sold it for $2.50, claimed a @2.50 loss, THEN bought your coffee

Enter the income as an "Crypto Interest Incentive". It will be listed on line 8 of your 1040, as other income entry (as opposed to interest income entry). 

If you use it to make a personal purchase, that transaction won't be reported UNLESS the value of this virtual currency is up when you use it, then you are taxed on the gain. When you USE IT (for a personal purchase), you may need to report a gain, but can't claim a loss. The IRS does not allow a personal loss to offset other income.

Step 1: Please follow the instructions below to report Other Income:

1. Click Federal Taxes -> Wages & Income and scroll down to Less Common Income
2. Go to the last selection, Miscellaneous Income and click Start
3. Go to the last option, Other reportable income and click Start
4. When it asks, "Any other reportable income?" > yes and then type in a description and the amount to report it on your tax return.
   • Type "Crypto Interest Incentive" as the description (or whatever you think will make sense to the IRS and always use this same description going forward) and the amount (the dollar value of the crypto) 
5. TurboTax Online and TurboTax CD/Download will use the same procedure

You will need to keep track of this basis for each unit of crypto you hold. The IRS says First In First Out, so when you use it, you use the oldest basis for that unit of crypto unless you specifically designate the crypto you sold.  Again, this all needs to be tracked for each action until you no longer have specific lots of crypto. 

@liliasergey​​​​​​​