Need help figuring out crypto taxes… what’s the cost basis here?

Hey everyone,

I usually help friends and family with their taxes, and it’s usually pretty simple.

But this time, one of them has a crypto situation from 2022 and 2024 that I’m not sure how to handle.

Here’s what happened:

In 2022, he bought 10 Ethereum for $2,000 each and sent them right away to his dad overseas because he owed him money.

In 2024, his dad decided to send back the same 10 Ethereum to help with school expenses. My friend then sold them immediately for $4,000 each on a US exchange.

So what’s the cost basis for my friend when he sells? Is it $2,000 or $4,000 per Ethereum?

Are there any other taxes he might have to deal with?

Thanks for any help!

Wait… did his dad ever sell them or buy new ones?

Jace said:
Wait… did his dad ever sell them or buy new ones?

Nope, his dad never sold them. He actually bought a little more over time (maybe 1.5 extra). But after two years, he just sent back exactly 10 of them to my friend, who then sold them.

@Zephyr
The cost basis is $2,000.

Jace said:
@Zephyr
The cost basis is $2,000.

Can you explain why? Or maybe point me to a website where I can read more about this?

Zephyr said:

Jace said:
@Zephyr
The cost basis is $2,000.

Can you explain why? Or maybe point me to a website where I can read more about this?

Back in 2022, your friend had a taxable event when he sent the $20,000 worth of Ethereum to pay off his debt. But since he bought and sent them immediately, there was no gain or loss.

His dad got 10 Ethereum worth $20,000. Since it was a gift, his dad’s cost basis stayed the same at $2,000 per coin. When a gift is given, the recipient takes on the original cost basis of the giver. So when your friend got them back and sold them, he had a long-term capital gain.

@Jace
Thanks a lot for the explanation :pray::pray::pray:. That makes sense now.

But here’s something interesting—if his dad had just sent him different 10 Ethereum that he bought separately, would that have been tax-free?

And how would the IRS even tell which Ethereum is which? :thinking:

@Zephyr
If his dad had bought new Ethereum, then the cost basis would be whatever he paid for them.

Getting a gift itself isn’t taxable. But once you sell, that’s when taxes kick in.

@Zephyr
How would the IRS know? The blockchain is public, isn’t it?

Zephyr said:

Jace said:
@Zephyr
The cost basis is $2,000.

Can you explain why? Or maybe point me to a website where I can read more about this?

Or to put it simply—your friend never really ‘lost’ the Ethereum. His dad just held onto them for a couple of years.

@Jace
One more thing—why doesn’t his dad have to pay tax on any of this? And since he’s a foreign citizen, does that change anything for my friend?

Zephyr said:
@Jace
One more thing—why doesn’t his dad have to pay tax on any of this? And since he’s a foreign citizen, does that change anything for my friend?

That depends on what country his dad lives in. Some countries tax crypto, some don’t.