The Tax Implications of Gifting Cryptocurrency
Understand how the IRS treats gifted cryptocurrency as a property transfer, creating distinct tax obligations for both the giver and the recipient of the asset.
Transferring cryptocurrency to another person without receiving anything of value in return is a gift. The Internal Revenue Service (IRS) treats cryptocurrency as property, not currency, which means the rules that apply to gifting assets like stocks or real estate also apply to digital assets. Understanding these regulations is important for ensuring compliance.
Tax Consequences for the Giver
When you give cryptocurrency as a gift, the transfer itself is not a taxable event in terms of capital gains. Unlike selling crypto on an exchange, making a gift does not trigger a capital gains tax liability for the giver. Even if the cryptocurrency has significantly appreciated in value since you acquired it, you do not owe taxes on that appreciation at the moment you transfer it. The tax considerations for the giver instead revolve around federal gift tax rules.
The federal government allows individuals to give a certain amount of assets away each year without tax consequences. This is known as the annual gift tax exclusion, and for 2025, this amount is $19,000 per recipient. As long as the value given to each person does not exceed this limit, you do not have to report the gifts.
If the value of a gift to a single person exceeds the annual exclusion, it must be reported. For example, if you give $30,000 worth of Bitcoin to a family member, the remaining $11,000 is a taxable gift. Reporting a taxable gift does not automatically mean you will owe tax, as the amount is applied against your lifetime gift and estate tax exemption.
For 2025, this lifetime exemption is $13.99 million per individual, and you would only owe gift tax if your total taxable gifts exceeded this limit. Any taxable gift you make during your lifetime simply reduces this exemption amount.
The value of a cryptocurrency gift is its Fair Market Value (FMV) at the date and time the transfer occurs. For actively traded cryptocurrencies, the FMV is the average of the high and low prices on a reputable exchange on the date of the gift. Accurately documenting this value is necessary for determining if you have exceeded the annual exclusion.
Tax Consequences for the Recipient
Receiving a gift of cryptocurrency is not a taxable event for the recipient. You do not need to report the gift as income on your tax return in the year you receive it, regardless of its value. The primary tax implications for the recipient arise later, when the gifted cryptocurrency is sold, traded, or otherwise disposed of.
The rules governing this future tax event are based on the concepts of carryover basis and holding period. When you receive cryptocurrency as a gift, you also inherit the giver’s original cost basis in the asset. This is known as the “carryover basis,” which is what the giver originally paid to acquire the cryptocurrency, not the fair market value on the date you received it.
For instance, imagine your friend purchased one Ethereum for $1,500 two years ago and gifts it to you when its fair market value is $4,000. Your cost basis in that Ethereum is the $1,500 your friend originally paid. If you later sell the Ethereum for $4,500, your taxable capital gain is calculated from your $1,500 basis, resulting in a $3,000 gain.
Along with the cost basis, the recipient also inherits the giver’s holding period. This determines whether a future capital gain will be taxed at more favorable long-term rates or higher short-term rates. If the giver held the cryptocurrency for more than one year before gifting it, you are also considered to have held it for more than one year.
Required Information and Recordkeeping
Proper recordkeeping at the time of the gift prevents future complications for both the giver and the recipient. The giver is primarily responsible for gathering and retaining the necessary information, especially if the gift’s value requires filing a gift tax return. This documentation equips the recipient with the data needed to accurately calculate taxes in the future.
The giver must document:
- Their own adjusted cost basis in the gifted cryptocurrency and the original date of acquisition.
- The exact date the gift was made and the Fair Market Value (FMV) on that specific date.
- The recipient’s name and address.
- A precise description of the asset transferred, such as “0.25 Bitcoin (BTC).”
It is the giver’s duty to provide the recipient with the information regarding the original cost basis and the acquisition date. The recipient should securely store the information received from the giver with their other tax documents.
Filing a Gift Tax Return
A gift tax return is required only when the total value of gifts made to any single individual during a calendar year surpasses the annual exclusion amount. The responsibility for filing rests solely with the giver, not the recipient of the gift.
The specific form required for this purpose is Form 709, United States Gift Tax Return. When completing it, you must report the cryptocurrency gift on Schedule A, providing a clear description of the property, the donor’s adjusted basis, the date of the gift, and its fair market value.
The deadline for filing Form 709 is April 15th of the year following the gift, aligning with the standard income tax filing deadline. If you file for an extension for your personal income tax return, that extension also applies to Form 709.