Are Your Clients Considering Gift and Estate Tax Consequences for Cryptocurrency Holdings?

Like any other piece of property, cryptocurrency can be subject to gift and estate taxes whether transferred as a lifetime gift or a gift at death. Cryptocurrency assets are treated as property for all federal tax purposes. In 2022, taxpayers can transfer up to $12.06 million worth of property per person without worrying about the federal estate tax. However, the exemption is scheduled to revert to around $5 million after 2025. That means many clients may wish to take advantage of a lifetime gifting strategy. Cryptocurrency assets gifted during life are removed from the donor's estate--and the IRS has already clarified that there will be no clawback provision if an individual donor takes advantage of the expanded estate tax exemption during life. Clients with significant cryptocurrency holdings may also wish to consider trust planning techniques, such as a spousal lifetime access trust (SLAT) which can remove the cryptocurrency from their estate for the benefit of a spouse and other heirs. Cryptocurrency assets that are inherited receive a step up in basis like any other property transfer, which can reduce or even eliminate capital gains on cryptocurrency sales after the original owner's death. For more information on the tax treatment of cryptocurrency, visit Tax Facts Online. : Q 7721