Under Internal Revenue Code Section 1014, property an heir inherits generally takes a "stepped-up" cost basis equal to its fair market value on the decedent's date of death, and inherited crypto generally follows the same rule. So if an heir later sells the crypto, capital gain is usually measured from that date-of-death value rather than what the decedent originally paid. This can sharply reduce the taxable gain on long-held, highly appreciated coins. Confirm treatment with a CPA, because facts and law vary.
What Step-Up in Basis Means for Inherited Crypto
Cost basis is the figure used to measure capital gain or loss when an asset is sold. While someone is alive, their crypto basis is generally what they paid for it. Section 1014 changes that at death: the basis of inherited property is generally "stepped up" (or down) to its fair market value on the date of death. For a coin bought years ago at a low price and worth far more at death, the heir's basis becomes the higher date-of-death value, so the built-in gain that accrued during the decedent's life is generally not taxed to the heir when they later sell. This is a general rule with exceptions, so treat it as a framework, not a guarantee for your situation.
How an Heir's Capital Gain Is Measured After a Step-Up
If an heir sells inherited crypto, the taxable gain is generally the sale price minus the stepped-up basis. Property acquired from a decedent also generally receives long-term holding-period treatment regardless of how long the heir actually held it, which affects the applicable capital-gains rate. The practical effect: an heir who sells shortly after inheriting often has little gain, because the basis and the recent value are close. Reporting still runs through the normal capital-gains forms; see Form 8949 for crypto investors for how dispositions are reported.
The Records Heirs Actually Need
The step-up only works if someone can document the date-of-death fair market value of each asset. Heirs and fiduciaries should capture a defensible valuation as of the date of death, exchange prices, custodian statements, or an appraisal for illiquid tokens, and keep it with the estate file. This valuation step is part of broader crypto inheritance planning for high-net-worth families and connects to the documents in the crypto estate planning hub. Where the assets sit inside an entity, the continuity rules in what happens to a crypto LLC or trust when the grantor dies also shape who reports the sale.
Related Questions
Does inherited crypto always get a step-up in basis?
Generally, property included in a decedent's estate receives a basis equal to its date-of-death fair market value under Section 1014, and inherited crypto usually follows that rule. There are exceptions, for example, assets in certain irrevocable trusts may not be in the taxable estate and may not receive a step-up, and rules differ for community property and for the alternate valuation date. A CPA or tax attorney should confirm treatment for your facts.
How do I prove the date-of-death value of inherited crypto?
Document the fair market value of each asset as of the date of death using exchange prices, custodian statements, or an appraisal for thinly traded tokens, and keep that record with the estate. Without it, the heir cannot reliably support the stepped-up basis when they later sell, which can expose more gain than necessary.
Does crypto held in an irrevocable trust get a step-up?
Often not, because assets that were successfully moved out of the taxable estate generally do not receive a date-of-death step-up. That is a deliberate trade-off: the estate-tax savings of removing appreciation can come at the cost of the basis step-up. Whether a particular trust's assets get a step-up depends on how the trust is structured and taxed; review with a qualified tax professional.
Sources
- IRS: Digital assets, https://www.irs.gov/filing/digital-assets
- 26 U.S.C. Section 1014 (basis of property acquired from a decedent), https://www.law.cornell.edu/uscode/text/26/1014
- IRS Publication 551, Basis of Assets, https://www.irs.gov/forms-pubs/about-publication-551
- IRS Topic No. 409, Capital Gains and Losses, https://www.irs.gov/taxtopics/tc409
Compliance Note
This article is for general educational purposes and is not tax, legal, or accounting advice. Basis rules depend on your specific facts, state law (including community-property rules), how assets are titled, and current federal law, which can change. Estate and tax planning are professional services; Digital Ascension Group coordinates with qualified CPAs and tax attorneys rather than providing tax advice itself. Investment advisory services are provided through DAG Wealth. Consult a CPA before relying on any basis or capital-gains treatment described here. Registration does not imply a certain level of skill or training.