Crypto Tax Prep: Donate Digital Assets Through The Giving Block

Learn the benefits of donating your crypto to those in need.

Justin Woodward
Crypto Tax Attorney

Donating cryptocurrency to an eligible charity can reduce your tax bill with a charitable deduction.

For crypto investors, giving to your favorite charity or cause is easier than ever through organizations like The Giving Block, which enables cryptocurrency and other digital asset donations to charitable organizations.

The Giving Block provides an automatic tax receipt upon donation.

Below, we explain the tax benefits of donating and gifting cryptocurrency in detail.

What’s the difference between a donation and a gift for tax purposes? 

The IRS makes a distinction between a donation and a gift for tax purposes dependent on who receives the cryptocurrency.

If you send cryptocurrency to a qualified charitable organization, this is considered a donation, also referred to as a charitable contribution.

If you send cryptocurrency to family, friends, or a crowdsource campaign for someone with medical bills, it’s considered a gift.

Is donating cryptocurrency a taxable event? 

No, donating cryptocurrency to a qualified charitable organization isn’t a taxable event; you don’t recognize income, a gain, or a loss from making the donation.

Gifting cryptocurrency isn’t a taxable event either.

When are you eligible for an itemized charitable deduction? 

If you held the cryptocurrency for a long-term period of more than a year prior to donation, you’re eligible for an itemized charitable deduction at the cryptocurrency’s current value, known as fair market value, at the time of contribution.

If you held the cryptocurrency for a short-term period of less than or equal to one year prior to the donation, you’re eligible for an itemized charitable deduction equal to the cryptocurrency’s cost basis.

You don’t incur taxable gains on appreciated assets when you’re donating either long-term assets or short-term assets.

For simplicity’s sake, most financial advisers will recommend donating assets in the order of preference below:

  • Long-term appreciated assets
  • Short-term appreciated assets
  • Short-term assets in a loss position

Each donation scenario and examples of the corresponding tax impacts are outlined below.

Example of a Long-term Appreciated Asset Donation

Imagine you bought 1 bitcoin (BTC) for $5,000 on October 15, 2017, and sold it on February 11, 2020, when it was worth $10,000.

If you sold your long-term, appreciated BTC for $10,000 rather than donating it, you’d incur a $5,000 long-term capital gain and owe taxes on that gain.

By donating it to a qualified charitable organization, you’re eligible to deduct $10,000 in itemized charitable deductions.

Example of a Short-term Appreciated Asset Donation

Imagine you bought 1 BTC for $5,000 on January 1, 2020, and donated it on February 1, 2020, when it was worth $10,000.

By donating it to a qualified charitable organization, you won’t recognize any gains, and you’re eligible to deduct $5,000 in itemized charitable deductions.

Please note, unlike the long-term example above, you’re only allowed to claim your cost basis of $5,000 as an itemized charitable deduction; you’re not allowed to claim the fair market value of $10,000.

Example of a Short-term Depreciated Asset Donation

Imagine you bought 1 BTC for $5,000 on January 1, 2020, and donated it on February 1, 2020, when it was worth $2,000. Obviously, your asset has depreciated in value.

If you were to donate the BTC directly to a qualified charitable organization, you’d receive the $2,000 itemized charitable deduction. However, you wouldn’t be able to claim the $3,000 capital loss.

If you sold your short-term, depreciated BTC for $2,000 when your cost basis is $5,000, you’d be able to claim a $3,000 capital loss. You could then take the $2,000 you received in cash consideration and donate it to a qualified charity to receive a $2,000 itemized charitable deduction.

How do you gift cryptocurrency? 

Gifts, unlike donations, can be sent to anyone. Whether it’s a birthday present, crowd-funding contribution, or an early inheritance, crypto sent to someone other than a qualified charitable organization falls under the gift category.

You can also reduce your tax liability by gifting an asset.

What are the tax obligations for a gift giver? 

The entire gift is tax-free to you, and it will be as if you never purchased or disposed of the asset.

For example, if you bought .5 BTC for $2,500 on October 15, 2017, then sold it on February 11, 2020, when it was worth $5,000, you’d have to pay tax on your $2,500 in capital gains.

But if you gift the .5 BTC instead, your generosity is rewarded with tax savings. You, as the giver, don’t owe tax on the capital gains.

Next steps

There’s no better karma than giving to those in need. And you can take advantage of the available tax savings.

TaxBit works with The Giving Block to optimize cryptocurrency charitable contributions, so taxpayers can give more donations and reduce their tax burden. Donate with The Giving Block today, and use TaxBit to optimize your charitable tax savings.

To learn more, visit The Giving Block.

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