Crypto Gift Taxes: A Definitive Guide
How do crypto gift taxes work?
There are no taxes on gifting crypto if you live in the US, Germany or France. But the same can not be said for other countries.
While it’s totally true that people might gift each other crypto just for the sake of it, mostly, that’s not the case. Mostly, people gift or donate crypto to improve their tax position.
There are various ways people leverage tax laws around gifting crypto in their favor, some of which we’ll discuss in this article. But before we get to that, you must first understand how crypto gift taxes really work.
How Does Crypto Gift Taxes Work?
First, we must know how the government classifies and treats crypto for tax purposes. Different countries have different guidelines and frameworks around how they view, treat and tax cryptocurrencies.
So, to answer how crypto gift taxes work, it depends. It depends on which country you live in and several other factors.
In some countries, gifting is tax-free, while in others, you have to pay capital gains taxes. Then there are the ones that have completely separate laws around crypto gifts.
Let’s go through each one of them.
Countries with No Taxes
Austria
It’s good news for Austrian citizens, gifting crypto is totally tax-free here. However, the only catch is you must report your crypto gifts to the BMF if they exceed the amount €15,000 for friends and third parties and €50,000 for relatives and family members.
Guide on how crypto taxation works in Austria.
France
In France, you only pay taxes on the disposal of your crypto assets, and according to the DGFiP, it’s only considered disposal if you transfer your crypto assets for fiat currency.
Therefore, gifting crypto is tax-free in France.
Guide on how crypto taxation works in France.
United States
There are no taxes on gifting crypto in the US. However, you must report your gifts to the IRS if their value exceeds $15,000 or $16,000 for transactions that take place in the 2022 tax year.
Though this probably doesn’t apply to most people, it’s still worth mentioning that there’s a lifetime limit on how much you can gift tax-free.
The limit was $11.7m until 2021, and now it’s $12.06m in 2022 and going forward. Once you exhaust this lifetime gift tax exemption, you may be subject to taxes for gifting crypto, even in the US.
On the other hand, if you’re on the receiving end of a crypto gift in the US, calculating the cost basis can get super difficult for you. You can skip to this part to know more about it.
Guide on how crypto taxation works in the US.
Countries with Tax Allowance
Germany
Germany provides a tax allowance for gifting crypto, which is €20,000 for friends and third parties and €500,000 for spouses.
Interestingly, once you exhaust these limits, you’ll lose your tax exemption privilege for ten years, as the tax exemption renews every decade.
Guide on how crypto taxation works in Germany.
The Netherlands
The Netherlands also provides a tax allowance of €3,244 for gifting and inheriting crypto. The limit increases to €6604 if it’s received from parents.
Countries with Capital Gain Taxes
Canada
Canada views cryptocurrency as a commodity, and as per the CRA, gifting crypto is considered disposing of your crypto. Therefore, you’ll pay the appropriate capital gain tax rate on gifting crypto.
Guide on how crypto taxation works in Canada.
South Africa
In South Africa, gifting crypto is treated the same way as selling it. However, there are no official guidelines on whether it’s taxed under capital gain taxes or income taxes.
But based on existing frameworks, it most likely will be taxed under capital gain taxes. Nonetheless, we still recommend you consult a tax professional to be sure.
The UK
In the UK, gifting crypto is only tax-free if the recipient is your spouse or civil partner, which you must prove too. Otherwise, gifting crypto attracts capital gain taxes in the UK.
Australia
In Australia, gifting crypto is taxed under capital gain taxes. The only exception is if you’re gifting to a Deductible Gift Recipient (DGR), which are basically government-recognized charities. In that case, it’s tax deductible.
Guide on how crypto taxation works in Australia.
Ireland
The Revenue views gifting as disposing of your crypto. Therefore, you must pay capital gain taxes.
However, if you’re on the receiving end of a crypto gift in Ireland, you must pay a capital acquisition tax on the FMV of the crypto you receive. Ironically, the capital acquisition tax rate is the same as the capital gain tax rate – 33%.
Guide on how crypto taxation works in Ireland.
Countries with Special Crypto Gift Taxes
Switzerland
Crypto taxes in Switzerland are highly complex due to different tax rates in different cantons (regions). The same is true for crypto gift taxes in Switzerland. But it typically ranges from 2%-36%.
Guide on how crypto taxation works in Switzerland.
Denmark
In Denmark, gifting crypto is taxed at a special gift tax rate of 15%.
You can potentially gift crypto tax-free if the value of your gift doesn’t exceed kr.69,500 in 2022 (kr.68,700 for 2021 transactions), but there’s a catch.
You can only avail this allowance if you’re gifting crypto to a family member or someone with whom you lived for at least two years. Even then, there are way too many nuances that make crypto gift taxes highly complicated in Denmark.
Japan
In Japan, gifting crypto is viewed the same way as selling it. Hence you must pay miscellaneous income tax on any gains made from gifting your crypto.
Tax Consequences on Selling Gifted Crypto?
What happens when you sell, spend or swap crypto that you once received as a gift?
Well, it’s viewed the same way as any other disposal of assets or crypto you have. Now, based on how your countries classify and tax cryptocurrency, you may be subject to capital gain taxes, income taxes or no taxes in some countries and scenarios.
How to calculate gains for selling gifted crypto?
It’s pretty straightforward. The fair market value (FMV) of your crypto at the time of receiving it as a gift will be the cost basis when you sell it. But that’s not always the case.
For example, the US has a very complicated method for calculating the cost basis for selling gifted crypto.
Calculating Cost Basis of your Gifted Crypto in the US?
There are four different scenarios with four different outcomes for calculating your cost basis.
Scenario #1
If the selling price of your gifted crypto is higher than its original cost basis, your cost basis would be the original cost basis.
For example –
Suppose that the original cost basis of a cryptocurrency is $3000
And at the time you received it as a gift, its FMV was $2000.
Now, after some time, you sold the crypto for $3500.
In this case, the cost basis would be $3000 – the original cost basis.
Scenario #2
If the selling price of your gifted crypto is lower than its original cost basis but higher than its FMV at the time you received it, you’ll pay no taxes.
For example –
Suppose that the original cost basis of a cryptocurrency is $3000
And at the time you received it as a gift, its FMV was $2000.
Now, after some time, you sold the crypto for $2500.
In this case, you’ll pay no taxes.
Scenario #3
If the selling price of your gifted crypto is lower than its original cost basis and its FMV at the time you received it, your cost basis would be the lower one.
For example –
Suppose that the original cost basis of a cryptocurrency is $3000
And at the time you received it as a gift, its FMV was $2000.
Now, after some time, you sold the crypto for $1500.
In this case, your cost basis would be $2000.
Scenario #4
If you don’t know the original cost basis of a cryptocurrency, your cost basis would be its FMV at the time you received it.
For example –
Suppose that you don’t know the original cost basis of a cryptocurrency.
But at the time you received it as a gift, its FMV was $2000.
Now, after some time, you sold the crypto for $1500.
In this case, your cost basis would be $2000 – the FMV at the time you received it.
Gifting Crypto to Reduce Tax Liability
One of the most common practices to save crypto taxes is to gift your crypto to your spouse or someone within your family. This allows you to reduce your tax liability but, at the same time, keep your crypto.
In countries with no crypto gift taxes, this strategy works really well.
But even in countries that impose capital gain taxes on gifting crypto, it’s a great way to deploy the tax-loss harvesting strategy while keeping the crypto to yourself unofficially.
Lastly, in some countries, taxpayers may benefit from paying crypto gift taxes more than capital gain taxes or income taxes.
When is it Not Worth it?
When you end up losing more than you save taxes because, at the end of the day, every taxpayer wants to pay as little as possible in taxes. And Sometimes, paying your taxes in the most straightforward fashion without any tax-saving strategy is the most cost-efficient way.
But then again, it all depends on where you live and your unique situation.
It’s better to consult a tax professional who can look at your unique individual situation and customize a tailor-fit plan accordingly, especially if you pay a lot in taxes.