Crypto Inheritance Tax: Basis, Valuation and Timing

Tax rules rarely top the list of worries when someone dies holding crypto, and rightly so. The larger risk is that nobody can reach the assets at all, in which case there is no value to report and nothing to plan around. But once access is sorted, basis and valuation decide what the family actually keeps. This is the second half of the crypto inheritance checklist work: first find it, then account for it correctly.

Conclusion: the date of death resets the tax base

For income tax purposes, the heir's starting point is the value on the date of death, not what the deceased paid. The technical name is a stepped-up basis under IRC section 1014, and it applies to crypto because the IRS classifies digital assets as property under Notice 2014-21. Bought at $5,000 and worth $45,000 when the owner died, the heir's basis becomes $45,000. Selling immediately at that price produces little or no capital gain, and the gain built up during the deceased's lifetime is never taxed to the heir. Only growth after the date of death is.

Valuing a volatile asset at a single moment

Crypto makes valuation more consequential and more contestable than most assets. General practice is fair market value on the date of death, usually an average of trading prices across major exchanges at that time, and the executor should record the exchange, the timestamp and the method. That record is not busywork: it becomes the heir's new cost basis, so its accuracy outlives the immediate estate question. Where the estate is large enough to require a federal estate tax return, the executor may elect an alternate valuation date six months later, which can reduce the taxable value if prices fell, but the election applies to the whole estate and carries trade-offs.

Where the step-up does not apply

• Crypto held in an IRA — No step-up. A self-directed or traditional IRA follows distribution and inherited-account rules based on withdrawals rather than capital gains, so the treatment is entirely different
• Assets moved into certain irrevocable trusts during life — May forfeit the step-up depending on the structure. This is a reason to check how an existing trust holds digital assets before death, not after
• Holders outside the United States — Step-up is a US concept. Other jurisdictions tax inherited crypto differently, some by inheritance or estate rules, some by treating the heir as standing in the deceased's shoes for capital gains. Confirm the local rule rather than assuming the US approach

The estate is its own taxpayer

Once the personal representative has authority, the estate exists as a separate entity for tax purposes. If it sells crypto to pay debts, fees or distributions, that sale is reported on the estate's income tax return, usually Form 1041, with any gain or loss measured against the date-of-death value. Two things follow. First, keep a dated record of every transaction, because the estate's accounting depends on it. Second, treat the decision to sell as a tax decision as much as a cash-flow one, and bring in the estate's tax preparer before liquidating a volatile position under deadline pressure.

Estate tax, exemptions and states

Federal estate tax applies only above the basic exclusion amount, which for deaths in 2026 is $15 million per individual, effectively $30 million for a married couple with a portability election, following the 2025 tax act and IRS inflation adjustments. Below that, most estates owe no federal estate tax. The state layer is different: several states impose their own estate or inheritance tax at thresholds far lower than the federal figure, so location matters as much as size. None of this changes the access problem, which is why the practical sequence still runs from locating and securing the assets to valuing and reporting them.

Why access failures cost more than tax

An executor with full legal authority can still be unable to reach a self-custody holding, and a stepped-up basis attached to an asset nobody can move is worth nothing. That is why the planning work is mostly operational: record where each wallet or exchange account lives, keep the recovery trail findable, and make sure one trusted person knows the plan exists. The mechanics of reaching exchange balances are covered in crypto exchange estate claims, and the self-custody side in crypto wallet inheritance. TimeWill is a digital legacy vault that holds the asset inventory, the access instructions and any letters encrypted, and releases them to a trusted contact through heartbeat check-in.

Disclaimer

This article is general information, not tax, legal or financial advice. Basis rules, valuation methods, exemptions and reporting requirements differ by jurisdiction and change with legislation and IRS guidance. Figures cited reflect published rules at the time of writing. Confirm the current position for your own situation with a qualified tax professional or attorney.