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Crypto Law/Level II · Tax: the first trap/2.1 Taxable events/Lesson 7

What is not a taxable event

The US actions that do not trigger tax on their own, from buying and holding to giving to charity, and the fine print that turns some of them back into taxable events.

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. Buying with dollars and holding is not taxable, and the IRS FAQs say a year of purchases only needs no reporting; the digital-asset question still requires a Yes in any year you receive or dispose.
  2. Moving coins between your own wallets and receiving gifts or inheritances are not taxable (section 102(a)); a fee paid in crypto is a disposal, and gifted coins carry the giver’s basis.
  3. Give up to $19,000 per recipient in 2026 with no gift tax and no Form 709; the giver reports no gain, and the recipient takes over the built-in gain with the coins.
  4. Donating coins held over a year to a section 170(c) charity realises no gain and generally deducts fair market value, up to 30% of AGI for public charities; itemizing and, above $5,000, a qualified appraisal are required.
  5. Holding appreciated coins until death lets heirs take a date-of-death basis under section 1014, so pre-death gain is never taxed as income; estates above the 2026 $15,000,000 exclusion face estate tax.

MaterialsThe IRS virtual currency FAQs, especially the answers on purchases, transfers, gifts and charitable donationsThe 2025 Form 1040 instructions on the digital-asset questionIRS Chief Counsel Memorandum 202302012 on appraisals for donated crypto

Wonder

  1. If my coins went up a lot this year but I did not sell, do I owe anything?
  2. Is giving crypto to a relative or a charity taxable to me?
  3. Can I deduct a loss when a coin crashes but I still hold it?

Explore

  1. A taxable event is an action that requires you to work out and report income, gain or loss. Under US federal tax law, crypto is property (lesson 2.1.1), so the general rule is realization: changes in value are not taxed until you dispose of the asset or receive it as income. The IRS lists a short set of actions that, on their own, generally do not require a ‘Yes’ to the digital-asset question on Form 1040: holding a digital asset in a wallet or account, transferring it between wallets or accounts you own or control, and buying it with US or other real currency.
  2. Buying with dollars is the first. The IRS FAQs say that if your only transactions in the year were purchases of virtual currency with real currency, you are not required to report them on your return; the purchase price simply becomes your basis. The instructions mention purchases through platforms such as PayPal and Venmo in the same list. Holding is the second: a coin that doubles in value while you hold it creates no tax until you dispose of it. The reverse is also true: a coin that crashes produces no deductible loss while you still hold it (lesson 2.3.3).
  3. Transfers to yourself are the third, with the fee exception explained in lesson 2.1.6: paying a network fee in crypto is itself a disposal. Receiving a gift or inheritance is the fourth. Section 102(a) of the Internal Revenue Code excludes property acquired by gift or inheritance from income, and the IRS FAQs say a recipient of a bona fide gift recognizes no income until the coins are disposed of. The recipient still inherits a basis question, which can make the eventual sale expensive (lesson 2.1.5).
  4. Giving is the fifth. A bona fide gift is generally not a sale, so the giver reports no capital gain; instead the federal gift tax rules apply. For 2026 the annual exclusion is $19,000 per recipient, and the 2025 Form 1040 instructions note that a giver of digital assets may be required to file Form 709. Donating to a charity described in section 170(c) is the sixth: the IRS FAQs say the donor recognizes no income, gain or loss, and coins held more than one year generally support a deduction equal to their fair market value, if the donor itemizes.
  5. Donations carry their own trap. In Chief Counsel Memorandum 202302012, released in January 2023, the IRS concluded that a taxpayer claiming a deduction of more than $5,000 for donated cryptocurrency needed a qualified appraisal, and that a value taken from an exchange did not substitute for one; without it, the deduction was denied. Such memoranda cannot be cited as precedent, but they show how the IRS applies the rules. For coins held one year or less, the deduction is limited to the lower of basis and fair market value.
  6. Not taxable is not the same as not recorded. Each of these events sets up a later calculation: a purchase fixes basis, a self-transfer moves basis between wallets, and a gift carries the giver’s basis to the recipient. Income events such as mining, staking, airdrops and getting paid in crypto are taxable when received and are covered in chapter 2.2. Other countries differ; UK guidance, for example, treats a gift to someone other than a spouse, civil partner or charity as a disposal by the giver. A practical check: list last year’s crypto actions and mark which ones were not taxable.

Key facts

  • The 2025 Form 1040 instructions list holding digital assets, transferring them between your own wallets or accounts, and buying them with real currency as actions that alone generally do not require a ‘Yes’.
  • The IRS FAQs state that a taxpayer whose only virtual currency transactions were purchases with real currency need not report them on the return.
  • Section 102(a) excludes property acquired by gift, bequest, devise or inheritance from gross income.
  • The IRS FAQs state that donating virtual currency to a section 170(c) charity produces no income, gain or loss for the donor.
  • For virtual currency held more than one year, the IRS FAQs give a charitable deduction generally equal to fair market value at the time of donation.
  • IRS Chief Counsel Memorandum 202302012 concluded that a deduction of more than $5,000 for donated cryptocurrency requires a qualified appraisal.

Exercise nine, six, three, one

9CollectList up to 9 crypto actions you took in the last year, or that a typical holder might take, including purchases, holding through price swings, transfers, gifts and donations.
6ClusterSort them into 6 categories: purchases with dollars, holding, transfers to yourself, gifts given or received, charitable donations, and actions that are actually disposals or income.
3DistillReduce the 6 categories to 3 groups: actions that are not taxable and need no record, actions that are not taxable but set up a later calculation, and actions that are taxable after all.
1CrystallizeWrite 1 sentence explaining, in your own words, why an action can be free of tax today and still matter for tax later.

Fact check

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

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