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Crypto Law/Level II · Tax: the first trap/2.1 Taxable events/Lesson 5

Gifts and inheritances

What happens for US tax when crypto is given away during life or passes at death: no income on receipt, but very different basis rules.

Education, not legal, tax or investment advice. Crypto law differs between countries and states and changes often. Check the current rules where you live with a qualified lawyer or tax adviser before you act.

The lean path

The cheapest, lowest-tax, simplest and most private route the law allows, best first. Each step names the rule it rests on and the condition that keeps it lawful.

  1. Receiving a gift or inheritance is not income under section 102(a); nothing is owed until disposal, but obtain the giver’s basis records now, because the IRS FAQs set basis at zero without documentation.
  2. Givers can transfer up to $19,000 per recipient in 2026 with no gift tax and no Form 709; married couples can give $38,000 by electing gift-splitting, but that election requires filing Form 709.
  3. Holding appreciated coins until death gives heirs a basis equal to date-of-death value under section 1014, and any sale is long-term under section 1223(9); the 2026 estate exclusion is $15,000,000.
  4. Gifting long-term coins to an adult relative in the 0% bracket (2026 taxable income up to $49,450 single) can let them sell at 0%; carryover basis applies, and the kiddie tax can reach children’s gains.
  5. Gifts to a US-citizen spouse are generally unlimited; for a non-citizen spouse the 2026 annual exclusion is $194,000. Section 1014(e) denies the step-up if gifted coins return to the giver within one year.

MaterialsSections 102, 1014, 1015 and 1223 of the Internal Revenue Code (on law.cornell.edu)The IRS gift tax FAQs and the instructions for Form 709Any record from the giver or the estate showing what the coins originally cost and when they were acquired

Wonder

  1. Do I owe income tax when someone gives me crypto?
  2. If I later sell gifted coins, whose cost do I use?
  3. Why can inherited crypto be taxed so differently from gifted crypto?

Explore

  1. In the United States, receiving crypto as a gift or an inheritance is not income. Section 102(a) of the Internal Revenue Code says gross income does not include the value of property acquired by gift, bequest, devise or inheritance, and the IRS virtual currency FAQs confirm that a recipient of a bona fide gift recognizes no income until they sell, exchange or otherwise dispose of the coins. A bona fide gift is a true gift, made without expecting anything back. Coins received for work, or as a disguised payment, are income instead (lesson 2.2.4).
  2. The giver’s side is handled mainly by the federal gift tax, which the giver, not the recipient, generally pays. For 2026, Rev. Proc. 2025-32 sets the annual exclusion at $19,000 per recipient, so gifts up to that amount to any one person in a year are not counted as taxable gifts. Above it, the giver generally must file Form 709, even if no tax is due, because the excess uses up part of a lifetime exclusion that the 2025 One Big Beautiful Bill Act set at $15,000,000 for 2026, adjusted for inflation from 2027. Gifts to a spouse who is a US citizen are generally unlimited.
  3. The trap for the recipient is basis. Under section 1015, gifted property keeps the giver’s basis for working out a gain; this is called carryover basis. If the coins were worth less than the giver’s basis on the day of the gift, a special rule applies for losses: basis for measuring a loss is the lower fair market value. Holding period carries over too, under section 1223(2). The IRS FAQs add a hard edge: if you have no documentation of the giver’s basis, your basis is zero, and without proof of the giver’s holding period yours starts the day after the gift.
  4. Inheritance works differently. Under section 1014, the basis of property acquired from a person who has died is generally its fair market value at the date of death, or at an alternate valuation date if the executor elects one under section 2032. This is often called a step-up in basis, though it can also be a step-down if the price fell. Under section 1223(9), an heir who sells within a year of the death is treated as having held the property for more than a year, so the gain is long-term. Valuing crypto at death is covered in lesson 9.1.5.
  5. The two rules pull in opposite directions. A gift during life passes on the giver’s old, often low, basis and the built-up gain with it; an inheritance can wipe out gain that built up before death. Section 1014(e) blocks one shortcut: if appreciated property is given to someone who dies within one year and it comes back to the original giver or the giver’s spouse, the giver does not get the stepped-up basis. The federal estate tax shares the $15,000,000 basic exclusion for 2026, and some states have their own estate or inheritance taxes (lesson 7.1.5).
  6. Other countries draw these lines differently. UK guidance treats giving cryptoassets away as a disposal for the giver, with exceptions for gifts to a spouse, civil partner or registered charity, which is a sharp contrast with the US carryover rule. Planning ideas built on these rules are covered in lesson 7.1.3. A practical check, for anyone holding gifted or inherited coins: write down the original purchase price and date, or the date-of-death value, today, while the giver or the estate’s records can still be reached.

Key facts

  • Section 102(a) of the Internal Revenue Code excludes property acquired by gift, bequest, devise or inheritance from gross income.
  • For 2026, the federal gift tax annual exclusion is $19,000 per recipient, and the basic exclusion amount for gift and estate tax is $15,000,000.
  • Under section 1015, a recipient of gifted property generally takes the giver’s basis, but for losses uses fair market value at the gift date if that is lower.
  • The IRS FAQs state that a gift recipient without documentation of the giver’s basis has a basis of zero.
  • Under section 1014, the basis of property acquired from a decedent is generally its fair market value at the date of death or an elected alternate valuation date.
  • Under section 1223(9), inherited property sold within a year of the death is treated as held for more than one year.

Exercise nine, six, three, one

9CollectList up to 9 crypto transfers in your family or in a news story that were gifts or inheritances, noting who gave what, when, and whether the original cost is known.
6ClusterSort them into 6 categories: small gifts under the annual exclusion, large gifts, gifts with known basis, gifts with unknown basis, inheritances with a date-of-death value, and inheritances without one.
3DistillReduce the 6 categories to 3 groups: transfers whose tax basis is clear, transfers whose basis depends on records you can still get, and transfers whose basis may be lost.
1CrystallizeWrite 1 sentence explaining, in your own words, why gifted crypto and inherited crypto can carry very different tax costs when sold.

Fact check

Dates, figures and claims checked against the published sources listed below.

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