How are Cryptocurrency Gifts Taxed?

Are you unsure how to report your cryptocurrency gift on your tax return? 

In this guide, we’ll break down everything you need to know about how cryptocurrency gifts are taxed — whether you gave a crypto gift or received one.

I gave a crypto gift. How is this taxed? 

I have gifted crypto worth less than $16,000. 

If you’ve given one or more crypto gifts this year, you should pay close attention to their fair market value at the time they were given. If the fair market value of your gifts to any one person does not exceed $16,000 during a calendar year, your gifts do not need to be reported on your tax return.

I have gifted crypto worth more than $16,000. 

If you give gifts with a fair market value exceeding $16,000, you will be required to fill out a gift tax return (IRS Form 709). This remains true even if you give multiple smaller gifts to a person that add up to over $16,000.

Filling out a gift tax return is primarily for informational purposes and does not necessarily mean that you’ll have a tax liability. Currently, taxpayers have a lifetime gift exemption of $12.06 million. As long as you do not exceed this lifetime limit, your gifts will not be subject to tax. 

It’s also important to keep in mind that you do not need to file Form 709 in the case that you are gifting cryptocurrency or other assets to your spouse. 

Unfortunately, the gift tax return cannot be filed electronically. It must be printed out and mailed to the IRS after the end of the tax year but before the April 15 tax deadline. If you file for a tax extension, you will have until the October extension deadline to file your gift tax return.

What information do I need to prove that I've given a crypto gift?

If you’re planning to give a crypto gift, we recommend drafting a letter to the gift recipient. This can help the recipient easily locate the information they need in case they face a future taxable event or an IRS audit.

The letter should contain the following information: 

1. The identities of both the gift giver and the recipient. 
2. A description of the cryptocurrency being gifted, including the name and amount of each cryptocurrency included in the gift. 
3. The gift giver’s date of acquisition for the cryptocurrency.
4. The gift giver’s adjusted cost basis for the cryptocurrency.
5. The date the gift was given. 
6. The fair market value of the gift at the time of transfer.
7. A statement from the gift giver that the transfer was a gift to the recipient with no expectation that it be paid back in the future.
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I received a crypto gift. How is this taxed? 

What taxes do I need to pay when I receive a crypto gift? 

Receiving a cryptocurrency gift is not considered a taxable event. Gift recipients are not required to recognize your newly-received cryptocurrency as income. 

However, you may be subject to capital gains tax if/when you dispose of your cryptocurrency in the future.

What taxes do I need to pay when I sell my crypto gift? 

If you’ve received a crypto gift, you’ll pay taxes when you sell or otherwise dispose of your cryptocurrency. You may be required to incur capital gains or capital losses depending on how the price of your crypto has changed compared to the original cost basis.

Typically, taxpayers calculate capital gains/capital losses using the formula below.

Here’s where things get complicated. When you’re selling a cryptocurrency gift, your cost basis can vary depending on the specifics of your situation. Here are a few common scenarios. 

Your gift has gone up in value and the price is higher than the gift giver’s cost basis  

If the value of your gift has gone up since you received it, your cost basis is equal to the gift giver’s cost basis (the cryptocurrency’s fair market value when the gift giver originally received it).

Your gift has gone up in value but the price is lower than the gift giver’s cost basis

It’s possible that the value of your cryptocurrency gift has gone up since you originally received it, but is still lower than the gift giver’s original cost basis. In this case, there is no capital gain or loss to be reported.

Your gift has gone down in value 

If the value of your gift has gone down since you received it, your basis is equal to whichever is lower: the gift giver’s cost basis or the fair market value of the crypto at the time the gift was given.

You don’t know the original cost basis of your gift 

If it is impossible to determine the gift giver’s cost basis, your cost basis is equal to the fair market value when you received the cryptocurrency gift.
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