As cryptocurrencies’ profiles rise in the marketplace, people are likely to begin asking questions about the possibility of using cryptocurrency holdings as part of their charitable giving plans. Interest in this technique has spiked in recent weeks, especially after the University of Pennsylvania’s announcement of a landmark $5 million gift of bitcoin to support the Wharton School’s Stevens Center for Innovation in Finance.
In many ways, advising about charitable gifts of cryptocurrency parallels the strategies routinely used to advise about a gift of any highly-appreciated asset. For example, cryptocurrency gifts require documentation similar to what’s necessary to substantiate gifts of real estate, closely-held stock, and collectibles.
In the case of cryptocurrency held as an investment for more than one year, the rules for gifts of long-term capital gains assets apply. In this situation, the gift of cryptocurrency is valued at its fair market value at the time of the donation.
The receiving charity must sign a person’s IRS Form 8283 for the person to be eligible for the charitable deduction (unless the value of the gift is less than $500).
A qualified appraisal is required for gifts with a value greater than $5,000.
The recipient organization is required to file IRS Form 8282 if all or a portion of the cryptocurrency is sold or converted to cash within three years of the gift. As with gifts to charity of other appreciated assets, the charity does not pay tax on the gains.
The IRS has issued guidance for charitable gifts of cryptocurrency, including confirmation that the usual rules apply for a “contemporaneous written acknowledgment,” even though cryptocurrency is treated and reported by the charity as a non-cash gift.