With the rise of virtual currency – such as Bitcoin or Ethereum – there are many investors that have significant unrealized gains embedded in their holdings. But when someone passes away, their holdings may go through a step-up in basis (depending on what it is they’re holding and how it’s held, e.g. brokerage account, Roth IRA, etc.). Effectively, the value at the date of death becomes the new cost basis for that asset. This may benefit the beneficiary greatly since there are no longer any unrealized gains to recognize at the date of death.
Because of the novelty of virtual currencies, many investors who have cryptocurrencies may be wondering where those fall in terms of a step-up in basis. Here’s your answer.
Cryptocurrencies are treated as property in the eyes of the IRS. One bulletin to read is IRS Notice 2014-21. Due to the tax treatment as property, the step-up in basis provision does apply to cryptocurrency, including Bitcoin, Ethereum, and yes, even Shiba Inu.
However, there is one important exception to this. If crypto assets are held inside of an individual retirement account such as a Roth IRA or IRA, the step-up in basis does not apply, as these assets are not eligible for the step-up in basis.
You can read more about other assets that step up in basis in our general overview of step-up in basis here.
Disclosure: We are not CPAs. Please consult a tax professional if you have any tax questions specific to your own personal situation.
ABOUT THE AUTHOR
Clint Walkner is one of the co-founders and managing partners of Walkner Condon Financial Advisors. He is a fee-only, fiduciary financial advisor who works with clients locally in Madison and around the country.