Donating Cryptocurrency

By Sean M. Rice, CTFA, Senior Vice President and Trust Officer at Garden State Trust Company; and a member of Samaritan’s Planned Giving Committee, a group of the region’s leading financial advisors, volunteering their time and expertise to raise awareness of the impact and advantages of charitable tax and estate planning.

Cryptocurrencies have grown in mainstream popularity over the past 15+ years. For early investors who have bought and held digital currencies such as Bitcoin and Ethereum, they are likely sitting on substantial unrealized capital gains.

While it took some time for the IRS to weigh in on the tax treatment of cryptocurrencies, they have since confirmed that they are treated as property, just like stocks. Therefore, when sold at a profit, cryptocurrencies are subject to capital gains taxes.

Moreover, and somewhat unique to cryptocurrencies, the IRS also clarified that capital gains will be realized when a crypto-holder exchanges one currency for another, AND if he or she uses a cryptocurrency to purchase a good or service.

Starting in 2025 crypto exchanges are finally required to report capital gains and other transaction information to the IRS, as part of the American Infrastructure Bill of 2021. But during prior years when this requirement was not yet in place, the IRS still placed the burden on the taxpayer to maintain accurate transaction records, which was challenging for many reasons. So, if you are a longtime crypto enthusiast, you likely have substantial unrealized gains as well as uncertain cost basis information.

However, for the following reasons, these issues present an excellent opportunity for those who are charitably inclined and for the recipient charitable organizations:

• Donor can receive an immediate charitable deduction*
• Donor can avoid realized capital gains on the appreciated cryptocurrency donated
• Donor can reduce overall investment exposure to volatile cryptocurrencies
• Blockchain technologies allow for cryptocurrencies to be transferred quickly to the charities, regardless of the location of the donor
• Upon receipt, charities can then immediately sell the cryptocurrency, incurring no capital gains tax and avoiding the price volatility of the cryptocurrency.

Potential donors should consult with their appropriate tax, financial, and legal advisors before making any decisions related to the donation of cryptocurrencies. Donors are also advised to consult with the potential recipient charities to ensure whether they can accept cryptocurrencies and, if so, which ones in particular.

*Based on FMV, provided the asset was held for more than one year, and taxpayer itemizes deductions.