Cryptocurrency
A charitable gift of cryptocurrency is treated similarly to a gift of appreciated stock, with the same potentially powerful tax benefits.
NEW! In partnership with anchorage.com, the UMass Foundation is now accepting gifts of cryptocurrency.
Cryptocurrency is a decentralized digital currency used by millions of people worldwide. If your client is one of them, they may own cryptocurrency that is currently worth much more than they paid for it. If so, and if they’ve held it for more than one year, giving cryptocurrency lets them make a big impact for a relatively low cost. Consider the double tax benefit:
- The donor may qualify for an immediate income tax charitable deduction for the full value of the cryptocurrency if they itemize.
- The donor owes no capital gains tax on the appreciation.
A qualified charity will immediately convert the donated digital currency into cash and put it to immediate use. It will be directed to the area of greatest need unless the donor specifies a particular program or area they would like to support.
Tax notes
- A gift of cryptocurrency held for more than one year may be deductible for up to 30% of the donor’s adjusted gross income. Any excess deduction can be carried over for up to five years.
- A gift of cryptocurrency over $5,000 requires an appraisal that must be reported on IRS Form 8283.
Check with the intended recipient.
There are many different digital currencies available. Each charitable organization will have its own list of currencies that it will accept as donations, so you should check with the organization before proceeding with a gift.
OPTION 2—funding a donor-advised fund with cryptocurrency
Another charitable option may be for the donor to transfer cryptocurrency to a donor-advised fund (DAF). Not all DAFs accept cryptocurrency, so confirm the viability of this approach before advising your client to transfer any digital currency from a digital wallet to a DAF.
Evaluate the fit.
Cryptocurrency held for more than one year may be a particularly good gift option for those who:
- Own appreciated digital currency
- Want to bypass the capital gains tax on the significant appreciation
- Want to qualify for a federal charitable income tax deduction for the full amount of the gift
See how it works.
For the past few years, Liam has given a check to his favorite charity for $10,000. This year, he realizes that the cryptocurrency he purchased three years ago as an investment has significantly increased in value. He decides to give the charity digital currency worth $10,000 that he purchased for $1,000. If Liam itemizes, he may be eligible to take a deduction for the full $10,000, even though $9,000 of it has never been taxed. In his 37% tax bracket, the tax savings are substantial.
| Gift of Cash | Gift of Crypto |
Liam's gift | $10,000 | $10,000 |
Income tax savings (37% tax bracket) | $3,700 | $3,700 |
Capital gains tax savings (23.8% of $9,000) | -- | $2,142 |
Tax savings generated by Liam's gift | $3,700 | $5,842 |
Consider the timing.
Donating major cryptocurrencies can be as fast as donating cash, meaning your client could donate on December 31 and still qualify for a charitable deduction this year. For smaller, less liquid cryptocurrencies, you should check with the organization first to see if they can accept the donation, meaning your client should initiate the donation process earlier in December.