Gifting Crypto and Tax: Carryover Basis
A gift is generally not a disposal for the giver, and the recipient inherits the giver's basis and holding period. That carryover is what most pages miss.
Gifting crypto is one of the few transfers that does not trigger a capital gain, which makes it useful and makes the rules worth understanding. The part that gets missed is what happens to the recipient, because the unrealised gain does not disappear. It moves.
The Giver
Making a gift is not a disposal. No sale occurred, no proceeds were received, and no capital gain is recognised.
That is the general rule and it is the reason gifting is sometimes considered as an alternative to selling.
A separate regime applies on top: gift tax. Where the value transferred to one recipient in a year exceeds the annual exclusion, a gift tax return is generally required. Filing that return is usually a reporting step rather than a payment, because amounts above the exclusion typically reduce a lifetime exemption instead of generating immediate tax.
The exclusion amount is indexed and has moved several times, so the figure for the year in question has to be confirmed rather than remembered.
The Recipient
This is the part that matters most and gets least attention.
The recipient generally takes the giver’s basis and the giver’s holding period. The asset arrives carrying its original cost and its original acquisition date.
Two consequences follow. The unrealised gain transfers with the asset, so the recipient will recognise it when they sell. And a long-held asset stays long-held in the recipient’s hands, which can mean a disposal shortly after receipt still qualifies for long-term treatment.
| Gift | Inheritance | |
|---|---|---|
| Disposal for the transferor? | No | No |
| Basis in the recipient’s hands | Carryover from the giver | Generally stepped to value at death |
| Holding period | Carryover from the giver | Generally treated as long term |
| Unrealised gain | Transfers to the recipient | Generally eliminated |
That contrast is the single most consequential fact in this area, and it is why gifting during life and transferring at death produce very different outcomes.
When the Asset Has Fallen
The carryover rule has an exception designed to stop losses being transferred to someone who can use them better.
Where the value at the date of the gift is below the giver’s basis, a dual basis applies. For calculating a gain, the recipient uses the giver’s basis. For calculating a loss, the recipient uses the value at the date of the gift. A sale at a price between those two figures results in neither gain nor loss.
The practical consequence is that gifting an asset standing at a loss wastes the loss. The giver would generally do better to sell it, recognise the loss themselves, and gift the proceeds.
Records the Recipient Needs
Because basis carries over, the recipient needs the giver’s acquisition records: what was paid, when, and in what quantity.
If those records do not travel with the gift, the recipient is left unable to substantiate basis when they eventually sell, and the practical result is often reporting a basis of zero and paying tax on the entire proceeds.
Transferring the records along with the crypto costs nothing at the time and is worth a great deal later. The value at the date of the gift should be recorded too, because it is needed if the dual basis rule ever applies.
Transfers Between Your Own Wallets
Moving crypto between wallets you control is not a gift and not a disposal. Nothing has changed hands.
This matters because tracking software frequently misreads such transfers as disposals, generating phantom gains. See crypto tax software for where these tools go wrong.
What People Get Wrong About This
The first mistake is thinking the gain disappears. It transfers to the recipient along with the asset.
The second is confusing a gift with an inheritance. The basis treatment is different and the difference is large.
A third is gifting an asset that has fallen in value, expecting the recipient to be able to claim the loss. The dual basis rule prevents it.
A fourth is not passing on the acquisition records, leaving the recipient unable to prove basis.
A fifth is assuming that no gift tax return means no obligation. The return requirement is triggered by the amount transferred, independent of whether any tax results.
And the last is applying this page anywhere else. These are United States rules, the treatment of gifts varies by country, and several jurisdictions do treat a gift as a disposal by the giver at market value. Check your local rules.
Related
Crypto tax basics covers how gains are computed generally, and capital gains on crypto covers the holding period that carries over with a gift. Donations to charity follow different and often more favourable rules and are worth looking at separately where the intention is charitable rather than personal. Nothing here is tax advice.
Common questions
Is giving crypto away a taxable event?
For the giver, generally not. Making a gift is not a disposal, so no capital gain is recognised at that moment. Separate gift tax rules may require a return where the amount exceeds the annual exclusion, which is a reporting obligation rather than necessarily a tax bill.
What basis does the recipient have?
Generally the giver's basis carries over, and so does the giver's holding period. The recipient is therefore standing in the giver's shoes: a long-held asset stays long-held, and the unrealised gain transfers with it. Special rules apply where the asset was worth less than its basis at the time of the gift.
What happens if the crypto had fallen below its cost?
The loss does not transfer cleanly. A dual basis rule applies: for computing a gain the recipient uses the giver's basis, and for computing a loss the recipient uses the lower value at the date of the gift. Selling between the two figures produces neither gain nor loss. Gifting an asset at a loss is usually worse than selling it and gifting the proceeds.
Do I need to file a gift tax return?
If the value given to one person in a year exceeds the annual exclusion amount, a return is generally required. Filing it is not the same as owing tax, because gifts above the exclusion typically reduce a lifetime amount rather than producing an immediate bill. The exclusion figure is indexed and changes, so confirm the current one.
Is donating to charity the same as gifting?
No, and the difference is favourable. A donation of appreciated property to a qualified charity can support a deduction while avoiding recognition of the gain, subject to holding period and substantiation requirements. That is a separate subject with its own rules.
Read next
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