If you inherit crypto and sell it, your inherited crypto cost basis should generally be its value at the date of death. That is the encouraging part of the rule: much of the appreciation before death is not taxed to you. The catch is that the new broker form may not show that basis, so your own records matter, and a sale above the date-of-death value is still taxed on the difference. Below I use the statute, the IRS’s publications and its announcement, and I label the rest as my reasoning. The numbers are assumed.
Inherited Crypto Cost Basis: The Date-of-Death Rule
Under section 1014(a)(1), property acquired from a decedent generally takes a basis equal to its fair market value at the date of the decedent’s death. If the estate elects the alternate valuation date under section 2032, the basis is the value at that date instead (26 U.S.C. § 1014). IRS Publication 551 says the same and adds that certain beneficiaries are required to use the Form 706 value as the initial basis, and that beneficiaries who receive a Schedule A (Form 8971) should use the estate tax value it reports (IRS Publication 551).
There is one exception worth knowing. Publication 551 says the general rule doesn’t apply if you or your spouse gave the appreciated property to the decedent within 1 year before the decedent’s death. In that case your basis is the decedent’s adjusted basis immediately before death (IRS Publication 551).
Long-Term Treatment
The Form 8949 instructions say that if you dispose of property you acquired by inheritance, you report the disposition as a long-term gain or loss regardless of how long you held it, and you enter “INHERITED” in column (b) (IRS Form 8949 instructions).
What the IRS Says About Broker Reporting
The IRS says brokers must report gross proceeds for digital asset transactions effected on or after January 1, 2025, and must report basis on certain transactions effected on or after January 1, 2026. The page doesn’t specify which transactions or the method for determining basis. Covered brokers include custodial trading platforms, certain hosted wallet providers and digital asset kiosks (IRS: final regulations for broker reporting of digital assets). The page doesn’t say how a broker would know an inherited asset’s date-of-death value.
If the Form’s Basis Is Wrong
The Form 8949 instructions describe what to do when the basis reported on Form 1099-B or 1099-DA is wrong. If it was reported to the IRS, you enter the reported basis in column (e) and correct the error with an adjustment in column (g), using code B in column (f) when the matching box is checked. If the basis wasn’t reported to the IRS, you enter the correct basis in column (e) and -0- in column (g) (IRS Form 8949 instructions). The IRS also notes a possible accuracy-related penalty if you claim a basis higher than the property’s final estate tax value (IRS: Gifts and inheritances).
A Worked Example (Assumed Numbers)
These figures are assumed, and they show how the inherited crypto cost basis changes the gain. Say crypto was worth $45,000 at the date of death and you sell it for $48,000. With the correct basis, your gain is $48,000 − $45,000 = $3,000. If a return used a basis of $0, the gain would be $48,000. The table shows the tax at two assumed rates. Your actual rate depends on your situation.
| Assumed rate | Tax, correct basis | Tax, basis left out | Extra tax |
|---|---|---|---|
| 15% | $450 | $7,200 | $6,750 |
| 23.8% | $714 | $11,424 | $10,710 |
My Reasoning on the Practical Fix
This is my reasoning. Since the IRS page says brokers report proceeds and, from 2026, basis for certain transactions, but doesn’t address inherited assets, I’d keep my own record of the date-of-death value, which is the inherited crypto cost basis, and use it when I report the sale.
How to Get Started With Inherited Crypto Cost Basis
- Record the date-of-death value for each coin, with a dated price source or an appraisal. Publication 551 mentions the appraised value at the date of death as a fallback when no Schedule A is received (IRS Publication 551). The dated price source is my suggestion.
- Ask the executor whether a Form 706 or Schedule A (Form 8971) exists, since it may set your basis.
- Keep estate papers showing how and when the crypto came to you.
- Compare the broker’s form to your own records before you file, and use the correction steps above if they differ.
Inherited Crypto Cost Basis: Questions Answered
What is the basis of inherited crypto? Generally its fair market value at the date of death, per section 1014(a)(1) above, or at the alternate valuation date if elected.
Is an inherited sale short-term if I sell quickly? The Form 8949 instructions say inherited property is reported as long-term regardless of how long you held it.
Why the Inherited Crypto Cost Basis Matters
Your inherited crypto cost basis is the number subtracted from the sale price, so a basis of $45,000 instead of $0 changes the gain in the example above from $48,000 to $3,000. Related reading: One Word in Your Trust Could Cost You Millions and You Can Be Taxed on Inherited Crypto You Can Never Actually Touch.
My Take on Inherited Crypto Cost Basis
- In my view, the most helpful step is documenting date-of-death values early, while the information is easy to find.
- In my suggestion, check the broker’s basis against your records before you file, since the IRS instructions give a clear way to correct it.
Sources
- 26 U.S.C. § 1014 (text)
- IRS Publication 551: Basis of assets
- IRS: Instructions for Form 8949
- IRS: Gifts and inheritances
- IRS: broker reporting of digital asset sales and exchanges
This article offers general information and my own opinions, not financial, tax, or legal advice. The figures in worked examples are assumed. Laws, tax rules, and products change and can differ by location, so check current official sources and talk to a qualified professional about your own situation.