Who doesn’t like to receive a gift, especially if it’s crypto? But would you like to pay tax on your gift? Your answer is probably no. So are crypto gifts taxable? How to report your cryptocurrency gift on your tax return? Also, is gifting crypto taxable?
There may be more questions than answers in your head when it comes to this topic. It is perfectly understandable, as the IRS’s rules governing cryptocurrency gift taxes are complicated for both the giver and the receiver.
This guide breaks down everything you need to know about how crypto gift taxes work for both parties involved. A few infographics are also presented to simplify your understanding of how crypto gifts are taxed in different scenarios.
Let’s get started!
Are Crypto Gifts Taxable for the Recipient?
Any property that is transferred for less than appropriate and full consideration is considered a taxable gift, according to the IRS. In plain English, this indicates that giving someone something without expecting anything in return or receiving something less valuable than the item you gave them qualifies as a gift.
Receiving cryptocurrency as a gift is typically not taxable for the recipient in the U.S. This is not required to be disclosed by the receiver on any tax forms. Only if the recipient sells the gift in the future will the recipient be required to pay capital gains taxes.
Is Gifting Crypto Taxable?
If the value of the cryptocurrency gift is less than $15,000 at the time of the gifting, the giver has no tax liability. However, the giver must submit a gift tax return if the amount of the cryptocurrency gift exceeds $15,000(IRS Form 709).
What Taxes are Due When Selling Cryptocurrency Gifts?
This is where things become complicated. Based on the circumstances, your cost basis changes if you trade a crypto gift. Here are 3 of the most typical situations.
The value of your gift has increased, and the purchase price exceeds the giver’s cost basis
Your cost basis is the same as the giver’s cost basis if the value of your gift has increased since you first received it. Your capital gain will be calculated on that cost basis.
Although the value of your gift has increased, the price is still less than the giver’s cost basis
Your cryptocurrency gift may now be worth more than it did when you first got it. But it may still be worth less than its initial cost basis. There is no capital gain or loss to be recorded in this instance.
The value of your gift has decreased
If the value of your crypto gift has gone down since you received it, your cost-basis is equal to whichever is lower: the giver’s cost basis or the fair market value of the tokens at the time the gift was given.
Are Tax Deductions Available for Crypto Gift Donations?
You may qualify for a deduction equivalent to the cryptocurrency’s fair market value on the day you donate it, If you donate cryptocurrency to the U.S. “501(c)(3)” charity. If you donate more than $250 in cryptocurrency, be sure to acquire a receipt. For cryptocurrency donations over $5,000, additional restrictions typically apply.
Are You Looking for a Simple Way to Monitor Your Cryptocurrency Taxes?
One thing remains constant whether you are gifting, purchasing, acquiring, or trading cryptocurrency. And that is complicated and stressful cryptocurrency taxes!
But you can rescue yourself with Mesha! We can help you with your crypto taxes. For instance, to remove any transaction from your Capital Gains Tax computations, Mesha can assist you in tagging tax-free presents. We can do much more. You will know once you get in touch with us.
Call us today to manage your crypto taxes.