Inherited Crypto Cost Basis: How an Heir Found the Step-Up

Inherited Crypto Cost Basis: How an Heir Found the Step-Up

Inherited crypto cost basis is where heirs lose money without noticing. The instinct is to use what the person who died paid. For inherited property, the basis is generally not that number at all.

Illustrative anonymized composite, drawn from recurring patterns rather than a single engagement. The firm named below was not involved in it. Coin names are omitted, and every dollar figure is invented and rounded. Nothing here is guaranteed or predictive.

The heir in this composite inherited coins on one exchange and in three wallets, and nearly filed with the decedent's original cost. A firm that works with crypto taxpayers is Crypto Tax Made Easy, an accounting firm in Little Silver, New Jersey, covered near the end, after the story.

Crypto Tax Made Easy is a paid featured member of Sam's List.

The Heir Who Nearly Used the Decedent's Original Cost

The heir's parent had bought coins over several years, mostly cheap. The heir found a spreadsheet of purchase prices, assumed that was the basis, and planned to sell one lot to cover estate expenses.

Using the old numbers would have reported a gain that mostly never belonged to the heir.

Crypto is treated as property for federal tax purposes (IRS Notice 2014-21), so the ordinary property rules apply. For property acquired from a decedent, the basis is generally the fair market value at the date of death (IRC section 1014). If the executor properly elected the alternate valuation date on an estate that files Form 706 and the election reduces estate tax, the basis follows that date instead.

The limitation: the step-up is a general rule, not a guarantee for every asset. Coins held in a joint account or a trust follow their own rules, and some transfers do not qualify. Estate or inheritance tax is a separate matter, and state rules vary.

Date of Death Crypto Valuation: A Defensible Inherited Crypto Cost Basis

Stocks have a closing price. Crypto trades around the clock on many venues, so a date of death crypto valuation takes a decision, and the decision has to be written down.

The IRS has not prescribed a single source for this. The common approach is a documented price from an exchange or an aggregator, often an average, time-stamped, with the method recorded. The CPA in this composite chose one method, applied it to every coin and saved the screenshots and exports.

Consistency is the point. Mixing sources coin by coin looks like shopping for a number.

The limitation: valuation involves judgment. A thinly traded coin may have no reliable price, and another reasonable source could produce a different figure. Document the method before filing, not after a notice.

Inherited Crypto Cost Basis, Lot by Lot

The estate held four lots. The table shows the decedent's basis against the heir's, with sales where they occurred. All figures are invented.

Lot	Quantity	Decedent's basis	Date-of-death value	Heir's basis	Sale proceeds	Gain or loss
A	10 units	$20,000	$90,000	$90,000	$95,000	$5,000 gain
B	100 units	$30,000	$12,000	$12,000	$11,000	$1,000 loss
C	50 units	$5,000	$25,000	$25,000	Not sold	None yet
D	Unknown	Unknown	Not valued	Not set	Not sold	None

Lot A is the near miss. At the decedent's $20,000 basis, the $95,000 sale would have shown a $75,000 gain. At the stepped-up $90,000 basis, the gain is $5,000. That is $70,000 of gain that never belonged on the return.

Lot B went the other way. The coin had fallen below the decedent's cost, so the basis stepped down to $12,000. The heir lost the decedent's higher basis, and the $1,000 loss after sale offsets capital gains such as Lot A's, so the net taxable gain across the two lots is $4,000. Any excess capital loss would be limited to $3,000 a year against other income.

The limitation: a step-up is not a free lunch for every lot. Where value was below cost at death, the same rule works against the heir.

The Inherited Crypto Holding Period Starts Long-Term

Lot A was sold about four months after the date of death. The heir assumed that made it a short-term sale.

Not generally. Property acquired from a decedent is treated as held for more than one year, so the inherited crypto holding period is long-term whether the heir sells in four months or four years (IRC section 1223(9)). The decedent's original purchase date does not matter, and neither does the heir's date of receipt.

That treatment applied to the Lot A gain and the Lot B loss alike.

The limitation: the long-term rule covers inherited property. Anything the heir buys, or earns from staking after the date of death, has its own basis and its own holding period.

What Could Not Be Recovered

Lot D is the part of the story nobody wants.

One of the three wallets had no recovery phrase in the papers, no password manager entry, and a hardware device with a PIN nobody knew. The heir spent weeks on it with the estate attorney.

If keys or access are missing, the coins cannot be sold, moved or reliably valued by the heir until access is recovered. Knowing a wallet exists is not the same as holding the coins. For tax reporting, the CPA recorded Lot D as an open item with the evidence of its existence, not as a number. If access returns later, the date-of-death value would be established then, with the documentation to back it.

The limitation: no tax rule fixes lost access. The estate may never recover Lot D, and a CPA cannot change that.

The Outcome: A Smaller Gain, an Honest Loss and One Open Item

The return reported the Lot A sale at the $90,000 basis and the Lot B sale at $12,000. Lot C stayed unsold at a $25,000 basis, and Lot D stayed on a list of open items with a note to revisit if access came back.

The heir kept the valuation file, the exchange exports and the wallet addresses with dates, in case of questions later.

This is a composite, and real estates are messier. Decedents have transfers between wallets, exchange accounts without statements and coins in places nobody knew about. A clean file lowers the risk of a notice. It does not prevent one.

Where Crypto Tax Made Easy Fits

Crypto Tax Made Easy is based in Little Silver, New Jersey, was founded in 2021 and has 6 employees. It serves clients nationwide, and its profile lists accounting and tax for crypto taxpayers, with SMB owners, VC-backed startups, real estate investors and solopreneurs among the audiences it serves.

Crypto Tax Made Easy did not work with the heir in this composite, and nothing above describes its results. It is named because its focus is crypto tax, so it is reasonable to ask whether inherited coins, date-of-death valuation and wallet reconstruction are in scope for you.

Crypto Tax Made Easy has 6 verified client reviews on Sam's List as of 2026-10-02. Each review is submitted by an individual who identifies as a client of the firm and rates it on communication, subject-matter knowledge, and overall satisfaction. Reviews reflect those individual experiences and do not represent an endorsement by Sam's List. Crypto Tax Made Easy is a paid featured member of Sam's List. Ratings and rankings are not indicative of future performance or results.

The limitation, plainly: a profile cannot tell you whether the firm has handled an estate like yours. Ask directly, and ask whether coordination with your estate attorney is part of the work.

Frequently Asked Questions

What is the cost basis of inherited crypto?

Generally the fair market value on the date of death, not what the decedent paid (IRC section 1014). If the executor elected the alternate valuation date and the election applies, that date's value is used instead. The basis can step down as well as up, and joint or trust holdings follow their own rules.

How do I value crypto at the date of death?

Use a documented, reasonable price source, such as an exchange or aggregator price or an average, time-stamped, and apply the same method to every coin. The IRS has not prescribed one source, so keep screenshots and exports. Thinly traded coins are a judgment call, so a CPA should document the method.

Is inherited crypto short-term or long-term when sold?

Long-term. Property acquired from a decedent is treated as held for more than one year, even if the heir sells soon after the date of death (IRC section 1223(9)). The rule applies to gains and losses. Coins the heir later buys or earns have their own holding period.

What if I cannot find the keys to an inherited wallet?

You cannot sell or reliably value the coins until access is recovered. Gather every document, device and password record, and work with the estate attorney and a CPA. Report what you can support, track the wallet as an open item, and do not guess a number.

If you have inherited coins, pull the exchange statements, wallet addresses and date-of-death prices before anyone sells a lot, then take them to a crypto-experienced CPA. You can browse accountants on Sam's List, including the firm above.

---

About the author: Kimberly Green is cofounder of Sam’s List, a directory and matching platform for financial professionals.