Gifting Crypto? This Tax Rule Could Cost Your Heirs a Fortune

Key Takeaways

• Gifting crypto during your lifetime doesn’t trigger tax, but your heirs inherit your cost basis, leading to major capital gains if they sell.

• Passing crypto at death triggers a step-up in basis, meaning heirs only owe tax on future appreciation, not your original gains.

• The step-up rule only applies if your estate falls under the current lifetime exemption (~$14M per person).

• If you’re planning to gift crypto, consult a tax professional first—poor planning can cost your heirs tens or hundreds of thousands.

Thinking about giving crypto to your kids while you’re still alive?

You might want to rethink that.

Under the U.S. tax code, there’s a huge difference between gifting crypto now versus passing it on after death. 

And if you don’t understand the rules, your heirs could end up with a massive tax bill—on gains they never actually earned.

Let’s break down the difference—and why smart crypto investors are using step-up in basis as a tool for long-term wealth transfer. 

Scenario 1: Gifting Crypto While You’re Alive

Let’s say you bought $10,000 worth of ETH back in 2019. Today it’s worth $100,000. You decide to transfer it to your son.

Good news:
There’s no tax at the time of the gift.

Bad news:
Your son inherits your original cost basis of $10,000. If he sells immediately, the IRS sees a $90,000 capital gain—and taxes him accordingly.

That’s a pretty nasty surprise for a “free” gift.

Scenario 2: Passing Crypto at Death (The Step-Up Advantage)

Now, imagine you hold onto that ETH until you pass away, and it’s included in your estate. Your son inherits the same $100,000 in ETH—but this time, he gets a step-up in basis.

Translation?
His cost basis becomes $100,000, not $10,000.

So if he sells immediately, there’s no capital gains tax. If he holds and sells later, he’s only taxed on any future appreciation—not your gains.

That’s a game-changer.

Why the Step-Up Rule Matters for Crypto Investors

This rule is one of the most powerful ways wealthy families pass down assets without triggering massive tax hits. 

And yes, it applies to crypto—not just stocks, real estate, or business equity.

But there’s a catch:

This only works if the transfer happens at death, and the asset falls under the lifetime estate tax exclusion (currently around $14 million per person).

What You Should Be Thinking About

✅ Don’t rush to gift appreciated crypto
Unless you’re managing a tax strategy, gifting can create tax traps for your heirs.

✅ Understand the lifetime exclusion
As long as your estate is under the unified gift & estate tax exclusion, the step-up benefit applies.

✅ Talk to a tax pro before transferring crypto
The wrong move could cost tens—or hundreds—of thousands in taxes down the line.

Need a Real Plan for Passing on Crypto Wealth?

At CryptoTaxAudit, we help crypto investors protect their portfolios across generations. 

Whether you’re building a long-term strategy or planning to transfer assets to your kids, we’ll help you do it the smart way—without triggering unnecessary taxes.

🔒 Keep your gains. Pass on your legacy.
Plan your crypto inheritance strategy now at CryptoTaxAudit.com

FAQ: Crypto Gifting and Inheritance

Q: Does the IRS treat crypto differently from stocks or real estate in inheritance?
A: No. Crypto receives the same step-up in basis treatment as other assets under current tax law.

Q: What’s the current estate tax exemption?
A: The unified federal estate tax exemption is roughly $14 million per person in 2025. If your estate stays under that, heirs get full step-up in basis.

Q: What makes CryptoTaxAudit different from other crypto tax services?
A: Most crypto tax services stop at filing your return. CryptoTaxAudit goes further. We specialize in audit defense, forensic gain calculations, and complex reporting across DeFi, NFTs, and multi-year holdings. If the IRS comes knocking, we don’t just hand you a PDF—we stand with you. That’s why experienced investors and high-net-worth traders trust us to handle portfolios with tens of thousands of transactions. 

Q: Can I gift crypto without triggering taxes?
A: Yes—but recipients inherit your original cost basis, which means they’ll owe tax on gains since your purchase date if they sell.