By Kevin Luu, Co-Founder and Chief Learning Officer. Reviewed on 2026-09-30.
Moving crypto between wallets you own is not taxable. The IRS says a transfer from one of your wallets, accounts or addresses to another one you control creates no income, gain or loss (IRS virtual currency FAQ, Q38). What can be taxable is everything around the transfer: a network fee paid in crypto, a swap into a different coin, or a sale. Sending crypto to someone else, including your child, is a gift: no income tax for either of you at the time, but the gift rules and your original cost basis travel with it.
For a two-earner household in California or Washington earning $750,000 or more, the self-transfer question is simple. The gift question is where the money is. Gifting appreciated crypto to a young child can look like a way to move the gain into a lower bracket, and for children under 18 the kiddie tax mostly closes that door. This guide covers both, with a worked example at your income level.
Why a transfer to your own wallet is not a sale
Since 2014 the IRS has treated virtual currency as property, not currency (IRS Notice 2014-21). Tax is owed when you dispose of property: sell it, exchange it, or spend it. Moving coins from an exchange account to a hardware wallet changes where they sit, not who owns them, so nothing is disposed of.
Three details trip people up:
- Fees paid in crypto. If the network fee for the transfer is paid in crypto, that small slice of crypto has been spent. The IRS says you generally do not answer “Yes” to the digital asset question on Form 1040 for transfers between your own wallets, unless you paid a transaction fee with digital assets (IRS digital assets page). The gain on a few dollars of fees is usually tiny, but it is a reportable disposition.
- Swaps are sales. “Converting” one coin into another, or moving from a coin into a stablecoin, is an exchange of property. Gain or loss is recognized (FAQ Q16).
- Basis tracking is now wallet by wallet. Since January 1, 2025, cost basis is tracked for the units in each wallet or account separately, and Revenue Procedure 2024-28 gave a one-time way to allocate unused basis to the units held in each wallet on that date (IRS digital assets page). If you move coins off an exchange, keep your own record of what they cost and when you bought them. The exchange will not know.
Exchanges now report too. Brokers file Form 1099-DA with gross proceeds for transactions from 2025, and basis information for certain transactions from 2026 (IRS digital assets page). If you move coins off one exchange and later sell them on another, the second broker may report the proceeds without your basis, which is exactly why your own records matter.
Can you gift crypto to your child tax free?
Usually yes, at the moment of the gift. A gift is not a sale, and your child has no income when they receive a bona fide gift of crypto (IRS virtual currency FAQ, Q31). Instead, your cost basis carries over to your child (FAQ Q32), so the built-in gain moves with the coins. The gift tax rules are the same as for any other property:
- For 2026 the federal gift tax annual exclusion is $19,000 per donor per recipient (Rev. Proc. 2025-32). A married couple can give $38,000 per child by electing gift splitting, which requires filing Form 709 even though no tax is due.
- Gifts above the exclusion use part of the giving parent’s lifetime exclusion (each parent’s, if you split gifts), $15,000,000 per person for 2026 (IRS, What’s new, estate and gift tax), and require Form 709 (Form 709 instructions). For families in this income range, actual gift tax is rare. The paperwork is not.
- Value the gift at fair market value on the day you transfer it, and keep a screenshot or exchange record of that price.
The part most families miss is basis. Your child takes your basis, not the value on the gift date. If the crypto is worth more than you paid, the gain is deferred, not erased. Your child’s holding period includes yours if you documented it (FAQ Q32 and Q33). If there is no record of your basis, the IRS says it is zero.
A practical note: most exchanges only open accounts for adults. For a child under 12, a gift of crypto usually means a custodial (UTMA) account at a platform that supports one. Selling coins to buy a crypto fund inside a UTMA at a brokerage is a sale by you first, with tax due, and a cash gift second.
Worked example: gifting $38,000 of appreciated crypto to a 9-year-old in California
Assumptions, for illustration only. Maya is a biotech scientist and Daniel works at a large tech company in the South Bay. Household W-2 and RSU income is about $1,200,000, filing jointly, with taxable income above $1,000,000. Their children are 5 and 9. Years ago they bought crypto for $6,000. It is now worth $38,000, held well over a year. Prices are hypothetical.
First, Daniel moves the coins from an exchange to a hardware wallet he controls. No tax, except a small reportable disposition for the few dollars of crypto used to pay the network fee.
| Option | Who owes tax, and when | Tax on the $32,000 gain (illustrative) |
|---|---|---|
| A. Sell now, gift the after-tax cash | Parents, this year | Federal 20% + 3.8% NIIT = 23.8%, about $7,616. California 13.3%, about $4,256. Total about $11,872. The child gets about $26,128. |
| B. Gift the coins to the 9-year-old’s UTMA, child sells next year | Child, under the kiddie tax | First $1,350 of unearned income tax-free, next $1,350 at the child’s rate, the remaining $29,300 at the parents’ rate. The federal result is close to Option A, and California has its own version of the kiddie tax. |
| C. Gift the coins, child holds until adulthood | Child, later, at their own rates | Deferred. Could be much lower if the child sells in a low-income year after the kiddie tax no longer applies. The coins legally belong to the child from the day of the gift, and the child takes control when the UTMA ends. |
| D. Keep the coins until death | Possibly no one | Heirs generally receive a basis equal to fair market value at death, so the $32,000 of gain is not subject to income tax (IRS Pub 551). |
The Option A figures use the 20% federal long-term rate that applies above $613,700 of 2026 taxable income for joint filers (Rev. Proc. 2025-32), the 3.8% net investment income tax above $250,000 of MAGI (IRS NIIT page), and California’s 13.3% top rate on taxable income over $1,000,000 (FTB 2025 rate schedules, the latest published), since California has no lower rate for capital gains (FTB). The kiddie tax thresholds are the 2026 amounts from Rev. Proc. 2025-32 and apply to children under 18, and in some cases to children aged 18 to 23, such as full-time students (Form 8615 instructions).
One nuance for Option B: the 3.8% NIIT is figured on the child’s own modified adjusted gross income, not the parents’ (Form 8615 instructions), and a single filer’s threshold is $200,000 for 2026, so a child’s sale may avoid it even when the rest of the gain is taxed at the parents’ rate. That is a real but modest difference, about $1,216 here. It is not a reason to gift on its own.
The takeaway: gifting to a young child mainly changes who owns the asset and when the gain is taxed. It rarely changes the rate much before 18. Options C and D are where the tax outcome actually moves, and both are really estate and family decisions.
How it plays out in Washington
Washington has no wage income tax for 2026. The state’s capital gains tax applies to long-term capital assets such as stocks and other investments, and crypto is not on its exemption list, so long-term crypto gains likely count toward it (DOR’s page does not address crypto by name): 7% on gains above the annual standard deduction ($278,000 for 2025, the latest published) and, from 2025, 9.9% on taxable gains above $1,000,000 (WA DOR, tiered rates). A $32,000 gain alone would fall under the deduction, but it adds to any RSU or stock sales in the same year. Starting January 1, 2028, Washington adds a 9.9% income tax for individuals and joint filers with AGI over $1,000,000 (WA DOR income tax), so the “no state tax” comparison will not hold for households at this income level for much longer.
Common mistakes with crypto transfers and gifts
- Losing the basis record when coins leave an exchange. Without it, a later sale by you or your child can be taxed as if basis were zero.
- Gifting crypto that is below what you paid. For a loss, the recipient’s basis is the lower of your basis or the value at the gift (FAQ Q32), so the loss largely disappears. Selling first and gifting cash lets you use the loss yourself.
- Skipping Form 709 on a split gift. Using $38,000 per child as a couple requires the return.
- Donating to charity without an appraisal. Crypto held more than a year and given to a qualified charity or donor-advised fund can be deducted at fair market value (FAQ Q34 and Q35). The IRS has said a donation of crypto claimed at more than $5,000 needs a qualified appraisal, and an exchange price is not enough (IRS CCA 202302012). For a high-bracket family that already gives to charity, this can be an efficient use of a low-basis coin.
- Forgetting the UTMA ends. In California a lifetime gift to a UTMA can run to 21 at most; in Washington a gift runs to 21, extendable to 25 when the custodian is first named (Cal. Probate Code 3920.5, RCW 11.114.200). After that, the custodian steps aside and your child controls the crypto outright. See UTMA withdrawal tax rules for how custodial accounts are taxed along the way.
What to document for your kids
A volatile asset handed to a child without an explanation is a lottery ticket. With a written note it is a lesson. Write down what you bought, what you paid, why you bought it, and what you would want them to do if it doubled or fell by half. Keep the purchase records, the wallet location and recovery instructions in the same place your executor can find them. As Kevin Luu puts it: “Your kids don’t need to inherit your portfolio. They need to inherit your decision-making process.”
That note belongs in your FamilyKnowledge® Library next to the rest of your estate documents (see our estate planning and family governance work).
Next step
Before you move or gift any crypto, pull your purchase history and confirm the cost basis of the specific units involved. That one record decides which of the four options above is worth considering. If you want a second set of eyes on how crypto fits with your RSUs, gifts and estate plan, our tax management team covers it in the Tax & Wealth Assessment.
This is general education, not individual tax advice. The right move depends on your family’s full picture.
Frequently asked questions
Are transfers between my own crypto wallets reported to the IRS?
The transfer itself is not a taxable event, and you generally answer “No” to the Form 1040 digital asset question for it. An exchange may still send a Form 1099-DA for other activity, and a transfer out can leave a later sale without basis on the form. If you paid the network fee in crypto, that fee is a small disposition and the IRS says to answer “Yes.”
Does my child owe tax when I gift them crypto?
Not when they receive it. A bona fide gift is not income to the recipient. Tax comes later, when your child sells or swaps it, and the gain is measured from your original cost. For a child under 18, most of that gain above $2,700 of unearned income is taxed at your rate for 2026 under the kiddie tax.
Is buying bitcoin as a gift different from gifting bitcoin I already own?
Yes. If you buy and give it right away, basis roughly equals the gift value, so there is little built-in gain. Gifting coins you have held for years hands your child a large deferred gain. Neither option creates income tax for you at the time of the gift.
Kevin has advised high-income W-2 tech and biotech families since 2015, and leads the education-first Age Five Family Office from Brea, California.
Connect on LinkedIn → · About KevinThis is part of how we approach Tax Management for high-income W-2 families at Bright Advisers.
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