Give the gift of crypto? Here's what to expect from your next tax return
Some things to consider before you send, receive, or sell a crypto gift
Giving crypto has become an increasingly popular gesture for difficult-to-please family and friends in recent years. Last holiday season, 1 in 10 Americans reported plans to give crypto — and for good reason. You can transfer bitcoin anywhere in the world, almost instantly. You can also spend it, save it, or cash in your crypto for dollars.
Gifting crypto can be a convenient way to share the wealth. But there are some things to consider before you send, receive, or sell your gift — importantly, whether you’ll owe taxes, and how much.
Giving a crypto gift
Gifts under $15,000 in crypto: No tax implications for gifter
Gifts above $15,000: Gifter must report gift to the IRS, using Form 709
Gifts above $15,000 count toward to a lifetime gift exemption of $11.7 million ($12.06 million in 2022)
If you gave less than $15,000 (or $16,000 for gifts made in 2022), go ahead and close this window: You won’t need to report your gift to the IRS. And keep in mind, this $15,000 limit is per recipient (including any other gifts of cash or other property to that recipient during the year). You can choose to give this amount or less to many different people and still take advantage of the tax exemption.
You will, however, need to report gifts above $15,000 using Form 709.
Why do you need to report larger gifts? Think of it like a very long-running tally: every time you exceed this annual limit over the years, your gifts are essentially pooled into a much larger, lifetime limit of $11.7 million total ($12.06 million in 2022). If you manage to give more than this amount, you may need to pay a gift tax.
However, there are lots of rules and exceptions when it comes to gift taxes. If you give more than $15,000 in crypto to a U.S. citizen spouse, for example, your gift is generally not reportable and it won’t contribute to your lifetime limit.
These taxes can get complicated, so we recommend meeting with a tax advisor to plan your next big gift.
Donating a crypto gift
If you gave crypto to a U.S. “501(c)(3)” charity, you’re likely eligible for a deduction equal to the crypto’s fair market value (how much it’s worth on the day you donated it). Be sure to get a receipt acknowledging your donation if you gave more than $250 in crypto. And special rules generally apply for crypto donations over $5,000.
Receiving a crypto gift
Getting crypto as a gift generally isn’t taxable on its own. Still, it’s always good to think ahead and make sure you collect and document a few key pieces of information:
The date of your gift: When the crypto was transferred to you
Your gifter’s original cost basis: The purchase price (or price acquired), plus fees, and date when your gifter acquired the crypto
The fair market value of the crypto when you received it: What your crypto was worth when it was transferred to you
Any gift tax the gifter may have paid: If the gifter was supposed to pay gift tax but didn’t, you’re responsible for paying the tax
Selling a crypto gift
Selling, converting, and other dispositions of crypto you received as a gift are taxable. In general, when you sell your crypto for more than your gifter bought it, you’ll need to pay capital gains taxes.
These rules can get pretty complicated: it’s best to speak with a tax advisor about your liability before making decisions, or filing a return.
There aren’t usually tax implications for getting crypto as a gift, but this changes as soon as you sell, convert, or dispose of gifted crypto. These are taxable events, and you’re responsible for reporting gains and loss, as well paying any capital gains taxes you incur.
How do you know what you owe? First, you’ll need to figure out your cost basis by comparing three things:
Your gifter’s cost basis on the date they acquired the crypto. As mentioned above, this is the price they purchased (or acquired) the crypto for, plus fees.
The fair market value of your crypto when it was gifted. If you received crypto through a crypto exchange, then you’ll likely see its fair market value in your transaction records.
The fair market value of your crypto when it was sold. This is your sale price, as noted in your transaction records.
Let’s look at an example scenario:
Say your gifter acquired crypto. The value increased, and then they gave it to you. This means the gifter’s cost basis is less than or equal to the fair market value of the crypto when it was gifted. This scenario is relatively simple: your cost basis and acquisition date are just your gifter’s cost basis and acquisition date, carried over from when they bought or acquired the crypto.
Now let’s put some numbers behind this:
Your friend bought 1 bitcoin for $2,000, including fees, on January 1, 2019. After a bull run, the fair market value of this bitcoin soared to $30,000 and this very generous friend gave you the bitcoin. One year later, your bitcoin is worth even more, and you sell it for $40,000, including fees, on February 1, 2020.
Your cost basis and acquisition date in this case is your friend’s original cost basis: $2,000 and acquisition date: January 1, 2019. Your taxable income is $40,000-$2,000 = $38,000 in long term capital gains.
Gifter’s cost basis
Fair market value at gift
Fair market value at sale
Your cost basis and acquisition date
Gifter’s cost basis: $2,000 Gifter’s acquisition date: January 1, 2019
$38,000 in long term capital gains
Keep in mind
This example covers just one of many different situations with a unique set of rules. If the bitcoin had sunk in value before your friend gifted it, another set of rules would have kicked in.
If these rules sound complex — that’s because they are! Ultimately, every situation is different, and it’s a good idea to speak with a tax advisor about your tax liability before making or selling a crypto gift, or filing your return.