How to Gift Crypto and Handle the Tax Rules

Gifting cryptocurrency involves transferring digital assets to another person without expecting anything in return. This practice has grown as digital assets become common, offering a modern way to transfer value. Understanding the process and its implications is important for both the giver and the recipient.

Key Considerations Before Gifting Crypto

Before gifting cryptocurrency, understand what constitutes a gift and how to value the asset. A gift is a voluntary transfer of property where the donor receives nothing of equal value in return. The Internal Revenue Service (IRS) treats cryptocurrency as property for tax purposes, similar to stocks or real estate.

Accurately valuing the cryptocurrency at the time of the gift is crucial for tax calculations. Fair market value is determined at the time of transfer. Use reliable exchange rates from reputable platforms to determine this value.

Recipients need a digital wallet to receive assets. Wallets can be software-based (hot wallets) or hardware-based (cold wallets), each offering different levels of security and accessibility. Hot wallets are connected to the internet and are convenient for transactions, while hardware wallets store private keys offline, providing enhanced security. Obtaining the recipient’s public wallet address is necessary for the transfer.

Transactions are irreversible once confirmed on the blockchain. This immutability means a transaction cannot be altered, canceled, or reversed once processed and added to the blockchain. Therefore, meticulously confirm the recipient’s wallet address and all transaction details before initiating any transfer to prevent loss of funds.

Executing a Crypto Gift

Gifting cryptocurrency involves several steps, depending on the method. One common approach is a direct wallet-to-wallet transfer, where the giver sends crypto from their digital wallet to the recipient’s public address. This method requires careful attention to detail, as selecting the correct network and ensuring the address is accurate are paramount to avoid loss.

Gifting via a centralized exchange is another method. Many exchanges allow users to buy cryptocurrency and then send it directly to an external wallet address. Users navigate to their exchange account, select the cryptocurrency and amount to send, and then input the recipient’s public wallet address. While exchanges may charge small fees, this process is straightforward for those already familiar with the platform.

A tangible option involves gifting a pre-loaded hardware wallet. This involves purchasing a new hardware wallet, loading cryptocurrency onto it, and securely transferring the device with its access information, such as seed phrases, to the recipient. This method provides the recipient with immediate control over the assets and can be particularly beneficial for those new to cryptocurrency, as it introduces them to secure storage practices.

Crypto gift cards or vouchers offer an alternative. These operate similarly to traditional gift cards but are pre-loaded with or redeemable for cryptocurrency. The giver purchases the card, which the recipient can then redeem on a specific platform to claim their digital assets. This approach simplifies the gifting process and can serve as an accessible entry point into the crypto space for new users.

Tax Implications of Gifting Crypto

Gifting cryptocurrency has tax implications for both the donor and donee. For the donor, gifting cryptocurrency is not a taxable event, meaning they do not realize a capital gain or loss by transferring the asset. However, donors must consider the annual gift tax exclusion. For 2024, this exclusion is $18,000 per recipient, meaning a donor can gift up to this amount to any number of individuals without incurring gift tax or reporting requirements. For 2025, this amount is projected to be $19,000 per recipient.

If the value of gifted cryptocurrency to a single recipient exceeds the annual exclusion, the donor must file IRS Form 709. Filing this form is primarily for informational purposes and does not necessarily mean a gift tax will be owed. Any amount exceeding the annual exclusion reduces the donor’s lifetime gift tax exemption, which is a substantial amount ($13.61 million for 2024, projected to be $13.99 million for 2025). Gift tax is only owed if the total lifetime gifts exceed this exemption.

For the donee, receiving cryptocurrency is not a taxable event, and they do not recognize income upon receipt. Tax implications for the donee arise when they sell, exchange, or dispose of the gifted cryptocurrency. At this point, the donee is subject to capital gains tax.

The donee’s cost basis for gifted crypto is the donor’s original cost basis. This means if the donee sells the crypto for more than the donor’s original purchase price, they will owe capital gains tax on the difference. The holding period for determining long-term or short-term capital gains includes the donor’s holding period.

Meticulous record-keeping is important for both parties to ensure tax compliance. Donors should document the date of the gift, the fair market value at the time of transfer, and their original cost basis. Recipients should obtain this information from the donor, as it is necessary for calculating their cost basis and any future capital gains or losses when they dispose of the asset.