If you’re thinking about making a charitable contribution this holiday season, donating cryptocurrency might not only be a generous move but also offer you a nice tax advantage. However, before jumping in, there are a few essential points you should be aware of, as experts suggest.
In 2024, donations of cryptocurrency to charity have surged significantly. Fidelity Charitable has reported receiving $688 million in crypto donations, primarily in Bitcoin, by November 19. This is a stark increase compared to the $49 million in digital currency donations they received throughout 2023.
Giving away cryptocurrency to charity operates much like donating other forms of property. But there are potential stumbling blocks, as noted by Juan Ros, a certified financial planner and partner at Forum Financial Management based in Thousand Oaks, California.
### Donate ‘the most highly appreciated asset’
Since 2018, the increased standard deduction has made it more challenging to itemize tax deductions for things like charitable contributions, medical costs, and state and local taxes.
However, if you do itemize and can claim the charitable deduction, it usually makes better sense to donate appreciated assets, like cryptocurrency, over cash. This approach allows you to sidestep capital gains taxes and potentially claim a deduction based on the asset’s market value, provided you’ve held it for over a year. Note that this tax break is capped at 30% of your adjusted gross income for public charities.
This strategy is particularly appealing for crypto investors, as assets like Bitcoin could represent “the most highly appreciated asset in their portfolio,” according to Kyle Casserino, vice president and charitable planning consultant at Fidelity Charitable. As of December 4, Bitcoin’s price soared to around $96,000, marking a significant year-to-date increase of nearly 120%, as reported by Coin Metrics.
However, donating cryptocurrency can present more complexities than other investments like stocks, so it’s wise to be prepared.
### Some charities don’t accept crypto
“Not every charity is ready or able to accept crypto donations,” warns Ros. So it’s crucial to check with the organization first. In January, according to The Giving Block, a platform dedicated to digital currency donations and fundraising, 56% of the largest U.S. charities were accepting cryptocurrency gifts, up from 49% the year before.
Meanwhile, most major donor-advised funds, which act as investment accounts that function much like charitable checkbooks, are well-prepared to accept digital currency, Ros points out. With these funds, donors receive an immediate tax deduction and then distribute the funds to qualified nonprofits later. Typically, these funds will sell the crypto and reinvest the proceeds, though some allow the digital assets to remain within the fund for a longer period.
### You may need a ‘qualified appraisal’
When you donate an appreciated investment held for over a year, your deduction is based on the asset’s fair market value. While this is straightforward for publicly traded stocks, the IRS mandates additional documentation for digital assets valued over $5,000, as explained by Andrew Gordon, a tax attorney and certified public accountant who leads Gordon Law Group.
“You need to support that deduction with a qualified appraisal,” satisfying specific IRS criteria, he explains. For instance, you’ll need to file Form 8283 with your taxes and retain a copy of the appraisal. If the donated asset’s value surpasses $500,000, the appraisal must accompany your tax return, as per IRS guidelines.
Adhering strictly to the IRS’s appraisal requirements is crucial, Ros advises, since failing to do so could jeopardize your charitable deduction if ever audited.
