How to Gift Cryptocurrency: Tax Rules and Reporting

Gifting cryptocurrency, a common practice, involves transferring digital assets to others. While its digital nature introduces unique nuances, the fundamental principles of gifting and associated tax considerations largely mirror those of traditional assets. This article guides you through the process of gifting cryptocurrency and understanding its tax implications.

Understanding the Tax Implications

The Internal Revenue Service (IRS) treats cryptocurrency as property for tax purposes. This means gifts of digital assets are subject to the same gift tax rules as other property, like stocks or real estate. Generally, the donor is responsible for any gift tax, not the recipient.

The annual gift tax exclusion allows an individual to gift up to $18,000 per recipient in 2024, increasing to $19,000 in 2025. This exclusion applies per recipient, meaning a donor can give this amount to multiple individuals annually without triggering reporting requirements or using their lifetime exemption. Married couples can double this exclusion by splitting gifts, allowing them to give up to $36,000 in 2024 or $38,000 in 2025 per recipient.

Gifts exceeding the annual exclusion reduce an individual’s lifetime gift tax exclusion. For 2024, this exclusion is $13.61 million, rising to $13.99 million for 2025. Gifts above the annual exclusion must be reported to the IRS to track the amount of lifetime exclusion used. They typically do not result in immediate gift tax liability unless the donor has exhausted their entire lifetime exclusion.

When a recipient sells gifted cryptocurrency, they face capital gains or losses. The recipient’s cost basis, used to calculate profit or loss, is generally the donor’s original cost basis. However, if the fair market value (FMV) at the time of the gift was lower than the donor’s basis, the recipient’s basis for determining a loss will be that lower FMV. This prevents transferring pre-gift losses to the recipient.

The donor does not incur capital gains or losses simply by gifting cryptocurrency. A taxable event for the donor occurs only if they sell the cryptocurrency for fiat currency or exchange it for another asset before making the gift. Gifting the asset directly avoids this immediate capital gains tax for the donor.

Gathering Necessary Information

Before initiating any cryptocurrency transfer, gather specific information and documentation. A primary requirement is accurately determining the fair market value (FMV) of the cryptocurrency at the precise moment of the gift. This value can be obtained from reputable cryptocurrency exchanges or price aggregators, ensuring the valuation is defensible. The exact date and time of the gift are also crucial for accurate record-keeping.

Information regarding the recipient is essential, especially their public wallet address for the specific cryptocurrency. Verify this address carefully, as an incorrect address can lead to irreversible loss of funds. The amount of cryptocurrency and the recipient’s identity should be recorded alongside the FMV.

The donor must know their cost basis in the cryptocurrency, as this information is relevant for the recipient’s future tax calculations. This includes the original purchase price of the asset, including any fees, and the acquisition date. Providing the recipient with this information enables them to accurately determine their basis when they sell the asset.

Maintaining thorough records is crucial in the gifting process. This includes transaction IDs, screenshots of transaction details, and any related communication. Such documentation provides a clear audit trail and supports reported values.

Transferring the Cryptocurrency

Once all necessary information is gathered, the cryptocurrency transfer can proceed. This involves sending digital assets from the donor’s wallet or exchange account to the recipient’s designated wallet. First, access the platform holding the cryptocurrency, whether a personal software or hardware wallet, or a centralized exchange account.

Within the platform, navigate to a “send” or “withdraw” function. Enter the recipient’s public wallet address. Verify this address carefully for accuracy, as blockchain transactions are irreversible. A single incorrect character can result in permanent loss of the gifted assets.

Next, specify the exact amount of cryptocurrency to send. Before confirming, a review screen usually displays all details, including the amount, recipient’s address, and any associated network fees. These network fees, often called “gas fees,” are typically paid by the sender and vary depending on network congestion and the specific cryptocurrency.

The transaction is then confirmed, often requiring two-factor authentication. After confirmation, the cryptocurrency is broadcast to the blockchain network. Because blockchain transactions are immutable, once confirmed on the network, a transaction cannot be reversed. This underscores the need for prior verification.

Transaction times vary, ranging from seconds to hours, depending on the cryptocurrency’s network and current congestion. The donor can track the transaction’s progress using a blockchain explorer by entering the transaction ID from their wallet or exchange. This confirms the funds have reached the recipient’s wallet.

Fulfilling Reporting Obligations

Even if no gift tax is owed, specific reporting obligations may arise when gifting cryptocurrency. If the value of the gifted cryptocurrency exceeds the annual gift tax exclusion, the donor is generally required to file Form 709, United States Gift (and Generation-Skipping Transfer) Tax Return. This form informs the IRS of the gift and tracks the amount against the donor’s lifetime exclusion.

Form 709 must be filed by April 15th of the year following the gift. For example, a 2024 gift generally requires filing by April 15, 2025. Extensions for income tax returns can also extend the Form 709 deadline. The form requires detailed information: donor’s and donee’s identifying details, a description of the gifted cryptocurrency, the gift date, and its fair market value at that time.

It is important to understand that filing Form 709 does not automatically mean gift tax is due. Instead, it primarily reduces the donor’s available lifetime gift tax exclusion amount. Tax is owed only if the cumulative value of all gifts made over a lifetime exceeds this lifetime exclusion.

Maintaining thorough records is crucial for accurate reporting. This includes documentation related to the cryptocurrency’s acquisition, its fair market value at the time of the gift, and the recipient’s information. These records support the figures reported on Form 709. For complex or very large gifts, consulting a qualified tax professional can provide tailored guidance and ensure compliance with IRS regulations.