Charitable Gifts of Cryptocurrency

November 17, 2021

By George Dulgeryan, J.D., LL.M., C.S.P.G.

The California Community Foundation (CCF) specializes in simplifying the process of converting complex, illiquid assets into charitable contributions and philanthropic dollars for the community. From commercial real estate to cryptocurrency, we have experience facilitating gifts of a broad range of assets.

If you are considering selling your crypto and are inclined to support one or more nonprofits or causes, consider donating your crypto interests instead. There are two main benefits of donating crypto directly to charity or to your donor advised fund: 1) eliminate some or all of the potential capital gains tax, and 2) receive a fair market value tax deduction for contributions of appreciated crypto.

How does this work?
The IRS classifies cryptocurrencies as property, so cryptocurrency donations to 501(c)(3) charities receive the same tax treatment as publicly traded stocks. Donating cryptocurrency is a non-taxable event, meaning you do not owe capital gains tax on the appreciated amount and can deduct it on your taxes.

For example, consider John, who invested $1,000 in one bitcoin in 2017. If John were to sell his one bitcoin for $50,000 today, he would have $49,000 of gain or approximately $11,600 in long-term capital gains tax. Instead, if John gifted his one bitcoin to his donor advised fund at a public charity, he could avoid having to pay any capital gains tax. Moreover, he would receive a charitable contribution deduction of $50,000, subject to a qualified appraisal, which could reduce his federal tax liability by up to 18,500 . That would be a combined tax savings of $30,100.

We encourage you to discuss your specific financial circumstances with your tax or financial advisor.

Considerations

Determine whether you would be itemizing your deductions or taking a standard deduction. Donors who take the standard deduction will not see a benefit of the charitable contribution deduction.
For gifts of cryptocurrency worth more than $5,000, donors will be required to substantiate their deduction by obtaining and including with their tax return a qualified appraisal.
Donations of cryptocurrency held for less than 1 year will be limited to a deduction amount equal to the donor’s cost basis in the donated crypto.
For donations of large amounts of crypto, consider the annual adjusted gross income limitations on deductions. Generally, contributions of crypto (held for more than 1 year) to a donor advised fund may be deducted up to 30% of the donor’s adjusted gross income. Any remaining deduction may be carried forward and utilized in one of the subsequent five tax years.
Generally, CCF’s policy is to liquidate cryptocurrency interests and convert them to USD upon receipt.

How CCF May Help
At CCF, we specialize in converting appreciated assets into philanthropic dollars, all while maintaining the highest level of tax efficiency. If you have any questions about charitable gifts of cryptocurrency interests, or any other charitable gift planning matters, please contact us to discuss how we may be of assistance.

George Dulgeryan is Director of Planned Giving at CCF.

1. Assumes maximum federal long-term capital gains tax rate of 20% and the net investment income tax of 3.8%. State or local taxes are not considered

2. Assumes highest federal income tax rate of 37%.

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