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Crypto Gifting 101 for US users

Crypto Gifting 101 for US users: What You Should Know Before Sharing the Wealth

Thinking about gifting cryptocurrency this year? Whether it’s a small token of appreciation or a generous donation, navigating the tax implications of crypto gifts can feel daunting. The good news? With a little know-how, you can stay on the IRS’s good side while spreading digital cheer. Here’s a clear, straightforward guide to giving, receiving, and donating crypto.

Gifting Crypto: The Rules of Generosity

  1. Gifts Under $18,000: No Tax Concerns
    Gifts worth less than $18,000 in 2024–2025 are easy: no taxes, no forms, and no worries. Just transfer the crypto and enjoy the satisfaction of giving.
  2. Gifts Over $18,000: Enter the IRS
    Once a gift exceeds $18,000, it must be reported to the IRS using Form 709. While you likely won’t owe any taxes immediately, the gift will count toward your lifetime gift tax exemption, currently a substantial $13.61 million per individual (2024–2025).
  3. Gifting to a Spouse: Tax-Free for U.S. Citizens
    Gifts to a U.S. citizen spouse are entirely tax-free, no matter the amount. For non-citizen spouses, there’s an annual exclusion limit of $175,000 for 2024.

Tip: For larger gifts, especially those nearing the exemption threshold, consulting a tax professional is a wise move.

Donating Crypto: A Win-Win Scenario

Crypto donations are not just a meaningful way to support a cause—they can also offer significant tax benefits.

  • Fair Market Value Deduction: If you’ve held the crypto for over a year, you can deduct its full market value at the time of donation.
  • Avoiding Capital Gains Taxes: By donating crypto directly, you bypass capital gains taxes you’d otherwise owe if you sold it.
  • Documentation Requirements: Keep a receipt for donations over $250. For contributions exceeding $5,000, you’ll need an independent appraisal.

Why It Matters: Donations to qualified charities (501(c)(3) organizations) can make a significant impact while reducing your tax liability—just ensure the paperwork is in order.

Receiving Crypto: What’s Yours Is Yours (for Now)

If someone gifts you crypto, the IRS won’t tax you on it immediately. However, when you decide to sell or exchange the crypto, that’s when the rules kick in.

To prepare for future tax events, keep track of these key details:

  • The gifter’s original cost basis (what they paid for the crypto).
  • The fair market value at the time of the gift.
  • The date of acquisition (useful for determining short- or long-term gains).

These records will help you calculate your taxable gain or loss when you eventually sell the asset.

Selling Gifted Crypto: When Taxes Come Into Play

When it’s time to sell or trade a crypto gift, the IRS will expect its due. Whether you face a gain or loss depends on the original cost basis and the market value at the time of sale.

  • Selling Above the Gifter’s Cost Basis:
    For example, if you receive a bitcoin with an original cost basis of $5,000 and sell it for $50,000, you’ll recognize $45,000 as a long-term capital gain (if held for over a year).
  • Selling Below the Gifter’s Cost Basis:
    If you sell for less than the cost basis but more than the market value at the time of the gift, the calculation can get a little more complex. Losses are generally limited to the lower of the cost basis or market value.

Tip: To avoid surprises, double-check the details with a tax advisor before selling.

Key Takeaways: A Smooth Path to Crypto Gifting

  1. For Givers: Gifts under $18,000 are tax-free and straightforward. Larger gifts require reporting, though immediate taxes are unlikely.
  2. For Recipients: Receiving crypto as a gift isn’t taxable, but selling it is. Record the gifter’s cost basis and market value to simplify future tax reporting.
  3. For Donors: Donating appreciated crypto directly to charity avoids capital gains taxes and may result in a tax deduction for the full market value.

Gifting and donating cryptocurrency can be rewarding for both the giver and the recipient. By understanding the tax implications and keeping thorough records, you can navigate the process with confidence.

For more guidance, consider consulting a tax professional and using crypto tax tools. After all, when it comes to crypto, staying informed is the best way to keep your wallet (and the IRS) happy.