Donating Crypto to Charity: Appraisals and Basis

Donating appreciated crypto is one of the few areas of crypto tax where the rules work in the taxpayer’s favour, and one where a procedural requirement quietly disqualifies donations that were otherwise fine. The tax treatment is favourable; the paperwork is exacting.

Why the Route Matters

There are two ways to give a charity the value of an appreciated asset.

Sell it, recognise the gain, pay tax on that gain, and donate what remains. The charity receives the after-tax amount and the donor has a deduction for it.

Or transfer the asset directly. No disposal occurs, so no gain is recognised, and a deduction is generally supported based on value rather than on basis, subject to holding period and the applicable limits.

The second route leaves more with the charity and less with the tax authority, which is why it is worth the additional process.

For an asset standing at a loss the analysis inverts. Selling first recognises the loss, which has value to the donor, and the cash is then donated. Donating the asset directly wastes the loss.

The Holding Period

The distinction between long-term and short-term property runs through this area, and it changes what deduction is available.

Long-term appreciated property generally supports a deduction measured by value. Short-term property is treated less favourably, with the deduction generally limited by reference to basis rather than value.

Because the holding period is measured from acquisition, and because units acquired at different times have different periods, identifying which units are being donated matters. See cost basis methods.

The Appraisal Requirement

This is where donations go wrong.

Donated property above a value threshold generally requires a qualified appraisal, prepared by a qualified appraiser, with a form signed and attached to the return.

Publicly traded securities are excepted from that requirement, and donors reasonably assume crypto falls into the exception because it trades continuously on public venues with a visible quotation. It has been treated as property rather than as a publicly traded security for this purpose, which means the exception has not applied and the appraisal has been required.

The consequence of missing it is not a smaller deduction. It can be no deduction at all, on a donation that was otherwise entirely proper.

Thresholds and requirements in this area are the kind of detail that changes, so confirm the current position before making a large donation rather than after.

Choosing the Recipient

A deduction requires a qualified organisation. The tax authority maintains a searchable list, and checking takes a minute.

A cause being worthwhile does not make the organisation qualified. Crowdfunding campaigns, mutual aid funds and foreign organisations frequently are not, however genuine the need.

Where a charity does not accept crypto directly, intermediary organisations exist that take the asset, liquidate it, and grant onward. That arrangement can preserve the treatment, but the donation is being made to the intermediary, so its qualified status is the one that matters.

Records

Keep the contemporaneous written acknowledgement from the charity, which is required above a modest amount and must be obtained by the time the return is filed rather than afterwards.

Keep the date and time of the transfer and the value at that moment, your basis, your holding period, and the appraisal where one was required.

The chain transaction proves a transfer occurred between two addresses. It does not establish the value, does not establish that the recipient is a qualified organisation, and does not substitute for the acknowledgement.

What People Get Wrong About This

The first mistake is selling first and donating the proceeds when the asset is appreciated. It recognises a gain that direct donation would have avoided.

The second is assuming the appraisal exception for publicly traded securities covers crypto. It has not, and this is the requirement that most often disqualifies an otherwise valid deduction.

A third is donating short-term property expecting the same treatment as long-term. The rules differ.

A fourth is donating to an organisation that is not qualified, discovered at filing time.

A fifth is donating an asset that has fallen below its cost, which wastes the loss.

And the last is assuming these rules travel. This describes the United States position; charitable deduction rules vary by country, including what qualifies as a charity and whether donating an asset is treated as a disposal at all. Check your local rules.

Getting It Right

Check the holding period. Check the organisation is qualified. Establish whether an appraisal is required for the amount involved, and arrange it before transferring rather than after. Obtain the acknowledgement. Then donate.

Doing those in order costs a little time. Doing them out of order can cost the entire deduction. Nothing here is tax advice, and a donation large enough to need an appraisal is large enough to justify professional input.