Understanding death taxes on btc

Imagine you have some bitcoin and owe taxes on it, but the government has no clue since you never cashed out. You are holding KYC-free btc, but cashing out would mean paying a hefty tax bill. Now, let's say you pass away and your child inherits your btc. The only transaction that exists is from an xmr address to btc, so there’s no info on how that btc was acquired. The kid only knows that some xmr was exchanged for btc a long time ago before they got it. From the kid's perspective, and the government's too, it's just btc that showed up after a trade from xmr ages ago. The btc just sat there for years, and now the kid inherits it along with the private keys from their late father. Would there be any tax the government would want in this scenario? And I'm curious about how this works in the US specifically. What about differences if someone was living in Puerto Rico, or what about Russian tax laws, or any other countries that come to mind?

There's inheritance tax that's collected in a lot of places that'd probably be the first thing to be paid. As for the selling of the btc to xmr, if it was done years ago and there's proof of that transaction then the price now-price then times whatever the capital gains tax is would be paid. If there was no record of it at all, I'm not sure how it'd be approached though, since any crypto has risen so much the inheritor might be expected to pay tax on everything and assume most of it was "gained" - or none but it would be dependent on the country.

Hmm yeah I guess that's just something I gotta really look up. If btc is gonna go to a million one day. I'm pretty much never gonna sell/cash out.  Whatever is most tax efficient for whatever kids I might have in the future. Usually at least in the USA, things like debt owed to companies dont get transitioned down to kids I dont think? At least not if the kid is under 18 and the parent dies before the kid reaches that age I think is how it works?

For the UK, the estate is transfered to a custodian for a year (normally a solicitors) so the tax will probably be determined by then. You can't inherit debt but you can't inherit assets if the person you're inheriting from had net zero (ie debt was more or equal in value to assets).

You wrote U.S., so I'll tell you what I know about U.S. taxes. You aren't taxed until you sell, so nobody owes nothing yet. None of that matters. The cost basis of inherited property is "stepped up" to the value of the property at the time of death. So, if the parent bought bitcoins at $10 and the kid inherited them at $40k, the cost basis is $40k, and not $10, and it generally doesn't matter how the property was acquired. However, there is an estate tax on inheritances with a value over $11M. I have dealt with this issue a few times now, so I believe that the summary I wrote above is close to accurate. OTOH, the laws are complicated and I am not an expert.

I believe that in many countries they are not prepared for situations like these and when they arise, they would decide on the fly. If they somehow believed the kid's story, they would make him pay taxes first on capital gains by his father, as if his father had cashed out on the day of his death, and then inheritance tax, death tax, as you call it. This is all very hypothetical, of course, the best the kid could do is try to move to some country where he would be welcomed with open arms if he goes with a huge amount of Bitcoin.

Generally, inheritance tax laws around the world work in a very simple manner, if you don't pay tax on it when you inherit it then when you will sell it the purchase cost will be the cost that was paid by the person you received it from. Moreover, In general, taxation laws of any country, the onus is on the taxpayer to bring in the evidence for the cost of acquisition, which means in case of absence of such evidence the department has full right to declare the cost of acquisition of that asset as NIL. Which means the entire amount when will be withdrawn will be taxed at flat % rate whatever government has in force.

Actually it was unacceptable one to pay tax for our btc works.We are promoting the project in the campaign.Why should we need to pay tax for it. If any country start to implemente this.It will decrease the price of bitcoin. Because huge taxation on the bitcoin users will automatically reduce the involvement of the investment. When we made a huge huge tax, the country won't developed with the corrupted politicians.

Not only for BTC earnings, we are supposed to pay taxes for everything we earn and if we don't then we are evading and we considered as criminals as per the laws. Paying taxes doesn't really affect the price unless the tax is not really fair rate for example people will avoid paying taxes if goverment ask 50%.

And keep in mind in the US some STATES will take inheritance a certain way that differs from the government. In the end, the best advice as always is consult a tax professional. Because even if what we give you here is 100% accurate and the best advice possible, it would be for TODAY. If you, or whoever die after Jan 1st 2023 then it might be totally different. -Dave

It's the same in most countries and all across the EU. You can accept the inheritance or not. If taxes owed from accepting something would be higher than the value of that thing you can refuse to inherit it and not have to pay anything. Also, in many countries there's no inheritance tax if the deceased is your closest relative like a parent or a spouse. The only tax owed would be the capital gains that the relative had to pay but didn't. There's also a question of being able to prove anything. For instance if it was many years since the transaction that was this taxable event and the tax office did not ask for it, chances are it never will. You also can act like you never knew about it. You simply inherit bitcoins as they are without being aware of any prior transactions and report ownership. When you sell them, for you it's your first taxable event and you pay what you owe, not what your relative owed because that does not concern you at this point. You acted in respect for the law and with good faith by reporting the inheritance and paying the taxes you owe, which in most countries would be enough for the court to rule in your favor if the tax office suddenly woke up.

You are discussing how the government might not know about the transfer of coin to a person's heirs, but that does not change the tax liability. I understand what odolvlobo is generally correct. The original cost basis will not matter when paying death taxes.