Cryptocurrency Taxation and Gift Tax Exemptions: What You Need to Know
Let’s say you’re feeling generous. You bought some Ethereum back in 2017, and now it’s sitting pretty. Your younger cousin just got into crypto, and you want to give them a jumpstart by gifting them a fraction of your stash. Seems simple enough, right? Just send the crypto, call it a gift, and everyone’s happy.
But then—bam!—tax season rolls around, and now you’re not sure whether Uncle Sam is about to knock on your door.
Welcome to the surprisingly nuanced world of cryptocurrency gifts and taxation. If you’ve ever transferred Bitcoin, Ethereum, or any other crypto asset to a friend, family member, or even a complete stranger without expecting anything in return, you’ve technically made a “gift.” And just like with cash or property, the IRS has something to say about that.
In this article, we’ll break down how cryptocurrency gifts are taxed, when gift tax applies, what the IRS gift tax exemption thresholds are, how cost basis transfers work, and what this all means for both the giver and the recipient.
Let’s dive in.
🧾 1. Crypto Is Property, Not Currency (At Least in the IRS's Eyes)
First, let’s get the foundation straight: according to the IRS, cryptocurrency is considered property, not currency. This has major implications for how gifts are treated. When you gift crypto, you’re gifting a piece of property—like a stock or a car—not just sending money.
This classification means that giving crypto away can trigger gift tax reporting requirements, and how it's later taxed depends on the original cost basis and holding period.
2. What Counts as a Gift?
A gift, as far as the IRS is concerned, is a transfer of value for which you do not receive full consideration in return. In plain English, it’s when you give something and don’t expect equal value back.
Some examples in the crypto world:
You send 1 ETH to your sister, no strings attached.
You transfer $10,000 worth of Bitcoin to your child’s wallet for their birthday.
You airdrop a Solana NFT to a friend “just because.”
These are all gifts, and they might be subject to gift tax rules—especially if they exceed certain thresholds.
3. How the IRS Gift Tax Works
Now, don’t panic. Just because you made a gift doesn't mean you owe taxes right away. The IRS allows an annual exclusion per recipient, and most crypto gifts will fall under this threshold.
2024/2025 Gift Tax Exclusion Limits:
$18,000 per recipient (increased from $17,000 in 2023)
If you’re married, you and your spouse can “split” gifts—doubling the exclusion to $36,000 per recipient
If you gift more than $18,000 worth of crypto to any one person in a year, you’re supposed to file IRS Form 709 (Gift Tax Return). But filing doesn’t mean you owe tax right away.
Instead, the excess reduces your lifetime estate and gift tax exemption, which for 2025 is over $13.6 million per individual. (It’s even higher for couples.)
Summary:
Gifts under $18K = no paperwork, no tax
Gifts over $18K = file Form 709, but still probably no tax owed unless you’ve exceeded your lifetime exemption
4. What About the Recipient? Do They Pay Taxes?
Nope. The recipient of a gift doesn’t owe taxes when they receive crypto. However, they will eventually pay capital gains tax if (or when) they sell that crypto—based on the donor’s original cost basis and holding period.
Let’s say:
You bought 1 BTC for $5,000 in 2018
You gift it to your friend in 2025, when it’s worth $60,000
Your friend sells it later that year for $70,000
In that case, your friend pays capital gains tax on $65,000 in profit ($70K – $5K), not on what the gift was worth when they received it. That’s because in most cases, the recipient inherits your cost basis.
This is called a carryover basis.
5. Basis Transfers and Holding Periods
When you gift crypto, two important things carry over to the recipient:
Your original cost basis (how much you paid)
Your original holding period (how long you held it)
This is important because it determines whether the recipient pays long-term or short-term capital gains when they eventually sell the crypto.
If the original holding period is over 12 months, the recipient may qualify for long-term capital gains treatment (which usually has a lower tax rate).
But here’s a wrinkle...
If the crypto has lost value when you gift it (meaning it’s worth less than what you paid), the recipient’s basis depends on whether they sell it at a gain or a loss.
If they sell at a gain, your original cost basis applies
If they sell at a loss, the fair market value on the date of the gift applies
So gifting depreciated crypto is a little trickier from a tax perspective.
6. When Do You Need to File IRS Form 709?
You only need to file Form 709 if:
You gave over $18,000 to a single person in a calendar year
You and your spouse are electing to split gifts (even under $36K combined)
You made gifts of future interests (not common in crypto)
Form 709 isn't about paying tax—it's about tracking your lifetime exemption.
It’s due with your tax return (typically April 15), and it’s filed separately from Form 1040.
7. What You Can’t Do: Gifting as a Tax Loophole
Let’s clear up a common misconception: You can’t gift crypto to avoid taxes on capital gains.
Some people think, “Well, I’ll just gift my crypto to my nephew, and let him sell it at his lower tax rate!”
Unfortunately, the IRS saw that coming. Since cost basis and holding period carry over, the gain is still traced back to you—meaning the recipient inherits your tax liability.
Gifting crypto to someone in a lower tax bracket can reduce the overall tax paid if they sell it, but it doesn’t erase the capital gain. Also, the IRS is very aware of strategies like:
Gifting crypto, then buying it back yourself at a higher basis (aka “step-up” schemes)
Gifting and receiving the same crypto in return later
These can trigger “step transaction doctrine” scrutiny, where the IRS looks at substance over form.
8. Crypto Gifting in Business and Estate Planning
Gifting crypto can also play a powerful role in:
Wealth transfer planning
Trust and estate structuring
Charitable giving strategies
For instance:
You could gift crypto to your children annually up to the exclusion limit—reducing your taxable estate over time
You could donate appreciated crypto to a 501(c)(3) charity, avoiding capital gains altogether and getting a tax deduction
You could set up a Crypto Donor-Advised Fund (DAF) or irrevocable trust to plan your long-term giving and minimize tax
In each of these cases, the IRS rules mirror those of traditional assets—but with the added twist of crypto’s volatility and traceability.
9. Valuing Crypto for Gift Tax Purposes
To report a crypto gift on Form 709, you need to know its fair market value (FMV) on the date of the gift.
The IRS generally expects:
Use of a reasonable exchange rate (e.g., Coinbase, Kraken, Binance)
FMV determined at the time of the transaction
If the crypto is volatile, you may want to screenshot or document pricing at the moment of transfer
Pro tip: if you’re making large gifts, it’s wise to keep records. Crypto gifts are inherently traceable—but documentation helps if the IRS ever audits your return.
10. Real-World Scenarios
Let’s look at a few simplified examples to tie it all together.
Scenario 1: Below the Limit
You gift your sister $5,000 in ETH.
You do not need to file Form 709
She gets your cost basis and holding period
No one pays tax until she sells the ETH
Scenario 2: Over the Limit
You gift a friend $25,000 in Bitcoin.
You must file Form 709 to report $7K over the exclusion
You don’t owe gift tax, but it reduces your lifetime exemption
Your friend takes your original basis and will owe tax upon sale
Scenario 3: Strategic Wealth Transfer
You gift $18,000 in crypto to each of your 3 kids annually for 5 years.
No gift tax filing required (as long as you stay under the threshold)
You've transferred $270,000 out of your estate, tax-free
They owe capital gains only when they sell
Final Thoughts: Gift Smart, Document Everything
Crypto gifts are a powerful way to share wealth, help family, and support causes you care about. But they’re not a loophole, and the tax implications are real. The IRS has been clear: crypto is property, and gifts of property must follow the rules.
Key Takeaways:
You can gift up to $18,000 per recipient per year without triggering gift tax filings
If you go over, file Form 709—but you probably won’t owe taxes unless you’ve exceeded your $13M+ lifetime exemption
Recipients pay capital gains tax when they sell, using your original basis and holding period
Gifting depreciated crypto? Be aware of dual-basis rules
For high-net-worth individuals, crypto gifting is a smart estate planning tool—but it should be paired with documentation and compliance
Pro Tip from CoinFlask:
If you’re gifting crypto regularly or using it as part of a trust, estate, or business strategy, work with a tax professional who understands the unique nature of digital assets. At CoinFlask, we help clients track wallet transfers, generate gift tax documentation, and optimize crypto gifting strategies across multiple chains—without breaking IRS rules.
DISCLAIMER: The views and opinions expressed are those of the authors and do not necessarily reflect the official policy or position of CoinFlask. Do your own research. This is not financial advice