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Giving or receiving crypto as a gift or inheritance has specific tax rules that differ from selling or trading. If you are looking into gifting crypto tax implications, here is what the IRS requires.
Gifting Crypto
When you gift crypto, the recipient generally receives your cost basis (carryover basis). You do not owe capital gains tax on the gift. However, if the gift exceeds the annual exclusion amount ($18,000 per recipient in 2024), you must file Form 709 reporting the gift. The excess applies against your lifetime gift and estate tax exemption.
Receiving Gifted Crypto
If you receive crypto as a gift, your cost basis depends on whether you sell at a gain or loss. If you sell at a gain, you use the donor cost basis. If you sell at a loss, you use the lesser of the donor basis or the fair market value at the time of the gift. This dual-basis rule prevents using gifts to manufacture artificial losses.
Inherited Crypto
Inherited crypto receives a stepped-up basis to the fair market value at the decedent date of death. This can eliminate capital gains entirely. If your parent bought Bitcoin at $100 and it was worth $60,000 at death, your basis is $60,000. If you sell for $65,000, your gain is only $5,000.
Estate Planning With Crypto
Crypto estate planning requires ensuring that heirs can access private keys, understanding the stepped-up basis benefit, and potentially using crypto donations to charity for immediate tax deductions. A tax attorney experienced in both crypto and estate planning can develop an optimal strategy.