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Crypto Law/Level VII · Loopholes worth understanding/7.1 Legal planning/Lesson 3

Gifting crypto

What giving coins away during life really moves from one taxpayer to another, and the rules on children, losses and large gifts that limit the planning.

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. Give appreciated coins within the 2026 annual exclusion of $19,000 per recipient (Rev. Proc. 2025-32), or $38,000 when spouses elect gift-splitting on Form 709 (§2513); the recipient takes the giver’s basis and holding period under §1015 and §1223(2).
  2. Shift gain to a lower bracket: a recipient whose 2026 taxable income stays within $49,450 single can sell long-term gifted coins at 0% federal tax; the gift must be real and irrevocable, with no quiet return of coins or proceeds.
  3. Above the annual exclusion, gifts draw on the 2026 lifetime exclusion of $15,000,000, so most givers pay no gift tax; the catch is filing Form 709 and giving up the step-up the same coins could get at death.
  4. Never gift coins worth less than basis: under §1015(a) the recipient’s loss basis is the lower market value, so the loss vanishes; sell them yourself to realize the loss, then give cash or other coins.
  5. Mind the kiddie tax: for 2026 a child’s unearned income above $2,700 is generally taxed at the parent’s rate under §1(g); send the giver’s basis and dates with the coins, or the IRS FAQs treat the recipient’s basis as zero.

Materials26 U.S.C. §1015 (basis of gifted property) and §1(g) (the kiddie tax) on law.cornell.eduRev. Proc. 2025-32, sections 3.02 and 4.42, for the 2026 kiddie-tax and gift-exclusion amountsIRS Form 709 and its instructionsA basis record for the coins: purchase dates, costs and the wallet they sit in

Wonder

  1. If I give appreciated coins to a relative in a lower bracket, who pays tax on the gain?
  2. Can gifts to my children use their low tax rate?
  3. What happens if I give away coins that are worth less than I paid?

Explore

  1. Lesson 2.1.5 covered the basics in US federal tax: a gift of crypto is not income to the recipient, the giver may owe gift tax above the annual exclusion, and the recipient takes the giver’s basis under 26 U.S.C. §1015, called carryover basis. For 2026 the annual exclusion is $19,000 per recipient (Rev. Proc. 2025-32). This lesson looks at the planning built on those rules. The core fact is that a gift moves the built-up gain along with the coin: the tax on it is not erased, it is paid later, by someone else, at that person’s rates.
  2. That is why gifts to lower-income family members come up in planning. Because the holding period also carries over under §1223(2), a recipient who sells promptly can still have a long-term gain. If the recipient’s total taxable income stays within the 0% long-term band, $49,450 for a single filer in 2026, part or all of that gain may be taxed at 0% federal rate (lesson 7.1.1). The gift is real and irrevocable: the coins belong to the recipient, who decides what to do with them, and an arrangement where the coins or proceeds quietly come back may not be treated as a gift at all.
  3. Gifts to children meet the kiddie tax in §1(g). It applies to a child under 18, and to an older child who meets the age test in §152(c)(3), generally under 19 or under 24 if in full-time education, and whose earned income does not exceed half of their own support. For such a child, net unearned income, which includes capital gains, above a threshold is taxed at the parent’s rate. For 2026 Rev. Proc. 2025-32 sets the base amount at $1,350, so the parent’s rate generally applies to unearned income above $2,700. Small gains may still be taxed lightly; large ones are not.
  4. Coins worth less than their basis are a trap. Under §1015(a), if the fair market value at the time of the gift is below the giver’s basis, the recipient must use that lower value as basis for measuring a loss. The built-up loss disappears: the giver never realized it and the recipient cannot use it. If the recipient later sells for a price between the gift-date value and the giver’s basis, there is neither gain nor loss. A giver who wants the loss for themselves would have to realize it before giving (lesson 7.1.2); giving the coin passes on only the gain side.
  5. Larger gifts use more rules. Under §2513, spouses who are both US citizens or residents can elect to treat a gift by one as made half by each, which doubles the annual exclusion to $38,000 per recipient for 2026; the election is made on Form 709. Gifts to a spouse who is not a US citizen have a separate 2026 annual exclusion of $194,000. Above the exclusions, gifts use the lifetime basic exclusion of $15,000,000 for 2026. Giving appreciated coins during life also gives up the basis step-up that the same coins could get at death (lesson 7.1.5).
  6. Paperwork decides whether the gift works as intended. The IRS virtual currency FAQs say a recipient who cannot document the giver’s basis has a basis of zero, so the record of cost and dates needs to travel with the coins. Other countries treat gifts differently: UK guidance treats giving cryptoassets away as a disposal by the giver, except gifts to a spouse, civil partner or charity. A practical check: for any gift you have given or received, write down the giver’s basis, the purchase date, the value on the gift date and the wallet. This lesson explains the rules; it does not recommend any gift.

Key facts

  • Under 26 U.S.C. §1015(a), a gift recipient generally takes the giver’s basis, but uses fair market value at the gift date for losses if that value is lower.
  • For 2026, Rev. Proc. 2025-32 sets the gift tax annual exclusion at $19,000 per recipient and at $194,000 for gifts to a spouse who is not a US citizen.
  • The kiddie tax in §1(g) applies to children under 18 and to certain older children meeting the §152(c)(3) age test whose earned income does not exceed half their support.
  • For 2026 the kiddie-tax base amount is $1,350, so a child’s net unearned income above $2,700 is generally taxed at the parent’s rate.
  • Under §2513, spouses who are both US citizens or residents can elect to treat a gift to a third party as made one-half by each.
  • The IRS virtual currency FAQs say a gift recipient who cannot document the giver’s basis has a basis of zero.

Exercise nine, six, three, one

9CollectList up to 9 gifts of crypto you have given, received or studied, with the giver’s basis, the value on the gift date and the recipient’s situation.
6ClusterSort them into 6 categories: gifts of appreciated coins, gifts of coins below basis, gifts to children, gifts between spouses, gifts above the annual exclusion, and gifts with missing basis records.
3DistillReduce the 6 categories to 3 groups: gifts whose tax effect is clear, gifts that lose a tax attribute such as a loss or a step-up, and gifts that need records or a Form 709 review.
1CrystallizeWrite 1 sentence explaining, in your own words, why giving an appreciated coin moves the tax on its gain rather than removing it.

Fact check

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

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