There are several things to keep in mind: When the cryptocurrency was sent to you at the time of the gift; The initial cost basis of your gifter, the cost (price paid), additional charges and fees, and the date that the gifter got the cryptocurrency; What cryptocurrency was valued at the moment it was given to you; A gift tax that was paid by the gifter is your responsibility if the gifter was required to pay gift tax and failed to do so.
Is Receiving Crypto as a Gift Taxable?
30 Dec, 2022
Giving or receiving cryptocurrency as a present would have been unthought of a few years ago. It's perfectly natural to do so today. However, like with any new investment, it is critical to conduct thorough research and comprehend all of the potential consequences.
Ordinary people may now buy and trade digital assets through popular platforms and exchanges like Exolix. Numerous platforms have made crypto gifting even easier by improving this function and feature for their customers.
However, if you receive cryptocurrency as a present, there are several points you need to think about, according to industry professionals.
Is a Crypto Gift Taxable?
Is a gift received taxable? Is receiving money as a gift taxable in the form of cryptocurrency? What tax applies to receiving crypto as a gift? There are so many questions about crypto gifts.
When a person receives a crypto gift, it is not taxed. However, if the receiver later sells or otherwise disposes of the coin, the activity must be reported on their tax form. Because the gift recipient's cost basis in the cryptocurrency will normally be equivalent to the giver's, the giver should show evidence to the recipient so that they understand their tax basis in the gifted coin.
Bitcoin and other coins are considered property and taxed similarly to gold or equities. That is why one may need to pay tax originating from the cryptocurrency received the previous year if it was sold for a profit. Receiving cryptocurrency as a gift is not a taxable event in itself.
What to Think about upon Receiving Crypto as a Gift
Is gifting crypto a taxable event? While the sender may be exempt from the gift tax, recipients may be liable to pay taxes on this cryptocurrency in the future, even if they dispose of it immediately after receiving it. This is determined by the gains and losses on the cryptocurrency when the gift receiver sells or transfers it. In other words, how much value the asset gained or lost in a certain period. So, is receiving crypto as a gift taxable for the recipient? It might be, and if you are the recipient, you should think about the tax implications.
When the gifted cryptocurrency appreciates over time, you will generate a capital gain once you sell or transfer it. The period of time you hold it has a difference in how much tax is payable, too. Any cryptocurrency kept for less than one year is considered a short-term gain. It is a long-term gain if you hold it for longer than one year. These distinctions can influence what tax rate is administered. The tax rate also differs according to your total taxable income, in addition to potential limitations on the amount you can deduct in capital losses in the event your coin drops in price.
Receiving a Cryptocurrency Gift
Upon receiving cryptocurrency in the form of a gift, it's generally a smart option to plan ahead and gather and document a few crucial data points. Whether you do your own taxes or hire a tax professional, maintaining a comprehensive history of transactions will prove helpful at tax reporting time.
Selling a Cryptocurrency Gift
When you decide to sell, convert, swap, or otherwise dispose of cryptocurrency received as a gift, it is taxed. In principle, if you sell your cryptocurrency for a price greater than what your gifter paid for it, you must pay tax on capital gains.
These regulations may be rather complex, so it's suggested that you consult a tax adviser before making any choices or filing a return.
Usually, there are no tax consequences for receiving cryptocurrency as a gift, but this changes when you sell, convert, or transfer the cryptocurrency. These are taxable situations, and you must declare your profits and losses along with paying any capital gains taxes owed.
This is when things become tricky. When selling a Bitcoin gift, your cost basis might vary based on the circumstances. Below are a few frequent instances.
- The gift has gained value, and the value is now greater than the cost basis of the gifter.
If the value of your gift has risen since you got it, the cost basis is the same as the giver's;
- Your asset has increased in value, yet the price is less than that of the giver's cost basis.
It's feasible that perhaps the value of the cryptocurrency gift has increased after you got it, although it's still less than the initial cost basis. There would not be either a capital gain or loss to declare in this circumstance;
- Your gift's price has decreased.
When the price of the gift has decreased since you got it, the basis would be the lesser of the gifter's cost basis or the crypto fair market value at the moment the present was given.
- You are unaware of the initial cost basis for the gift.
If determining the initial holder's cost basis is not possible, the cost basis is equivalent to the fair market value at the time you got the cryptocurrency gift.
If such regulations appear complicated, it's because they are. Finally, because every case is unique, it's a good idea to consult with a tax adviser about the tax liabilities upon receiving or prior to selling a crypto gift or submitting your taxes.
Because cryptocurrency is a new and developing asset class, be sure to expect numerous changes to how it is regulated in the coming years, which means it is definitely a good idea to consult tax specialists who have expertise in and understanding of cryptocurrency in any complicated tax filing process.
Frequently Asked Questions
Initially, you must determine the cost basis by comparing three factors: The cost basis of your gifter at the time they obtained the cryptocurrency. As previously stated, this is the price at which they purchased (or otherwise obtained) the cryptocurrency, including fees; The fair market value of your cryptocurrency at the time it was gifted. When you acquire coins from a cryptocurrency exchange like Exolix, you'll most certainly see fair market value on the transaction logs; The market value of your cryptocurrency at the time it was sold. This is the amount you sold for, as recorded in records of your transactions.
If you handle your own taxes, use Form 8949 to calculate your capital losses and gains and afterward declare them on Schedule D of the Form 1040 tax return. The IRS website has further information, tools, and resources to assist you in calculating your crypto-related tax base and how to declare it.
A capital loss is the inverse of a capital gain. You may deduct $3,000 from the amount of the taxable income, provided your losses exceed your profits (for individuals).
As per BlockFi's research, Bitcoin is the most popular cryptocurrency for giving and receiving, with Dogecoin and Ethereum following in second and third, respectively.