Are you unsure how to report your cryptocurrency gift on your tax return?
Feeling confused is perfectly understandable. The IRS’s rules governing cryptocurrency gifts are complicated for both donors and recipients.
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. We even added a few infographics to illustrate how these gifts are taxed in different scenarios.
I gave a crypto gift. How is this taxed? I have gifted crypto worth less than $15,000.
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 $15,000 during a calendar year, your gifts do not need to be reported on your tax return. I have gifted crypto worth more than $15,000.
If you gift crypto with a fair market value of more than $15,000 to any one person in a calendar year, you will be required to fill out a gift tax return
. This remains true even if you give multiple smaller gifts to a person that add up to over $15,000. In the 2022 tax year, the amount you are able to gift to any one person in a calendar year will increase to $16,000. (IRS Form 709)
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.
In addition, 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:
The identities of both the gift giver and the recipient. A description of the cryptocurrency being gifted, including the name and amount of each cryptocurrency included in the gift. The gift giver’s date of acquisition for the cryptocurrency. The gift giver’s adjusted cost basis for the cryptocurrency. The date the gift was given. The fair market value of the gift at the time of transfer. A statement from the gift giver that the transfer was a gift to the recipient with no expectation that they have to pay you back. 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. You will not be required to recognize your new tokens as income. What taxes do I need to pay when I sell my crypto gift?
On the other hand, selling the tokens that you received as a gift is considered a taxable event. You will be required to incur
or capital gains depending on how the price of your tokens has changed compared to the token’s capital losses . 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 price of your gift has gone up since you received it, your cost basis is equal to the donor’s cost basis.
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 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 donor’s cost basis or the fair market value of the tokens 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 original owner’s cost basis, your cost basis is equal to the fair market value when you received the cryptocurrency gift.
I made a crypto donation. How is this taxed?
Donating cryptocurrency to charity is considered tax-deductible.
If you’ve held your cryptocurrency for 12 months or longer, you’re eligible for a deduction equal to the fair market value of your tokens.
If you’ve held your cryptocurrency for less than 12 months, you’re eligible for a deduction based on whatever is lower: your cost basis or the fair market value of your tokens.
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