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.
Giving a cryptocurrency gift where the fair market value of the tokens is less than $15,000 is not considered a taxable event and does not need to be reported on your tax return.
If you’re giving a cryptocurrency gift with a fair market value of more than $15,000, you will be required to fill out a gift tax return (IRS Form 709). Unfortunately, this form cannot be completed 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:
Receiving a cryptocurrency gift is not considered a taxable event. You will not be required to recognize your new tokens as income.
On the other hand, selling the tokens that you received as a gift is considered a taxable event. You will be required to incur capital gains or capital losses depending on how the price of your tokens has changed since you originally received them.
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.
If the price of your gift has gone up since you received it, your cost basis is equal to the donor’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.
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.
If you don’t know the original cost basis of your cryptocurrency gift, you will need to recognize the cost basis as $0.
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.
Whether you’re buying, selling, receiving, or giving away cryptocurrency, one thing remains true: dealing with your crypto taxes can feel stressful.
CryptoTrader.Tax can help. More than 100,000 investors use our platform to make reporting crypto taxes simpler than ever. The platform supports automatic integrations to platforms like Coinbase and Kraken, so you can file your tax return in minutes.
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