Why donating crypto can be tax-smart

Donating cryptocurrency you own directly to a qualified charity is often more tax-efficient than selling the holdings and gifting cash. The IRS treats virtual currency as property (IRS Notice 2014-21), so converting crypto to cash triggers a sale and a taxable capital gain. If you instead transfer long-term appreciated crypto (held more than one year) directly to a public charity, you generally avoid recognizing capital gain and may deduct the asset’s fair market value (FMV) on the donation date — subject to adjusted gross income (AGI) limits and substantiation rules (IRS Publication 526).

In my practice working with individuals and nonprofit partners, the single biggest planning win is donating appreciated crypto directly (not selling first) and documenting the transfer carefully. When charities are set up to accept crypto, the process can be quick and beneficial to both donor and recipient.

Key IRS rules to know (2025)

  • Classification: The IRS treats virtual currency as property, not currency (IRS Notice 2014-21; Virtual Currency FAQs). That triggers capital-gains rules when you sell or exchange.
  • Long-term vs. short-term: If you held the crypto for more than one year before donating, you may deduct FMV of the gift. If held one year or less, your deduction is limited to your cost basis (what you paid).
  • AGI limitations: For donations of appreciated long-term capital gain property to public charities (including many donor-advised funds), the deduction is generally limited to 30% of your AGI. Gifts to private foundations have a lower limit (generally 20% of AGI). Excess amounts can often be carried forward up to five years (see IRS Pub 526).
  • Substantiation and forms: Noncash gifts trigger additional reporting: Form 8283 is required for noncash contributions over $500, and Section B (with donee signature) is needed when the claimed deduction for an item (or group of similar items) exceeds $5,000. Charities must provide contemporaneous written acknowledgments for gifts of any value over $250.

Sources: IRS Notice 2014-21; IRS Publication 526 (Charitable Contributions); Form 8283 instructions.

Practical step-by-step process to maximize tax benefits

  1. Confirm the charity can receive crypto. Not all organizations have the technical or policy capacity to accept in-kind crypto donations. Ask whether they accept direct wallet transfers, use a third-party processor (like The Giving Block), or prefer a broker-to-broker transfer.
  2. Verify the organization’s tax status. Use the IRS Tax Exempt Organization Search to confirm the recipient is a qualified 501(c)(3) — only donations to qualified organizations are tax-deductible (IRS Pub 526).
  3. Check your holding period and basis. Determine when you acquired the crypto and your cost basis. If you’ve held the asset >1 year, you may be eligible for an FMV deduction.
  4. Transfer the crypto in-kind. Send the coins or tokens directly from your wallet or custodian to the charity’s wallet or through an accepted processor. Avoid selling on an exchange first — that sale creates a taxable event.
  5. Get written acknowledgement. The charity must provide a contemporaneous written acknowledgement (date, description of the gift, and whether goods or services were provided) for any donation over $250.
  6. Complete Form 8283 if required. For noncash gifts over $500, report the contribution on Form 8283; for items over $5,000, Section B and, in some cases, an appraisal or additional documentation may be necessary (see Form 8283 instructions).
  7. Itemize to claim. Charitable deductions are claimed on Schedule A of Form 1040; you must itemize your deductions to take advantage of the donation instead of the standard deduction.

Custody and valuation pitfalls to avoid

  • Don’t assume every transfer is treated the same: sending crypto through an exchange that immediately sells or converts it may create a taxable sale. Confirm the receiving method keeps the transfer “in-kind.”
  • Valuation: Use a consistent and defensible source for FMV on the donation date (exchange price at a specified time). Keep screenshots, transaction IDs, and the charity’s receipt.
  • Documentation: Maintain a contemporaneous record including the date of transfer, transaction ID, amount, and the charity’s acknowledgment. Good recordkeeping reduces audit risk.

For more on custody and valuation specifics, see our guide on Using Cryptocurrency Donations: Custody, Valuation, and Tax Notes.

Examples (illustrative)

  • Individual donor: You bought 2 BTC two years ago for $10,000 and today it’s worth $80,000. If you donate the 2 BTC directly to a qualified public charity, you may avoid the capital gain and claim an $80,000 charitable deduction (subject to the 30% AGI limit). If you sold the BTC first, you’d recognize the gain and owe taxes on the difference before donating the after-tax proceeds.
  • Donor-advised fund: Donating appreciated crypto to a donor-advised fund (DAF) can concentrate giving and provide immediate tax benefits, but remember the AGI limitations still apply. DAFs can convert crypto to cash to make grants later.

Common mistakes that reduce tax benefits

  • Selling before donating. This is the most costly mistake: it creates a taxable event and reduces the dollars you can donate after tax.
  • Donating crypto held ≤ 1 year and expecting FMV. Short-term holdings typically limit your deduction to basis, not FMV.
  • Failing to obtain the charity acknowledgment or complete Form 8283 when required. This can lead to disallowed deductions on audit.
  • Assuming every charity accepts crypto. If a nonprofit isn’t set up to accept crypto, they may ask you to liquidate and donate cash — losing the tax-efficient path.

When donating crypto is not the best move

  • If you need the loss. If your crypto is currently worth less than your cost basis and you want a tax loss, sell (recognize the loss) and donate cash — the donation deduction is limited to the cash you give.
  • If you don’t itemize. If you take the standard deduction, you get no additional federal tax benefit from an itemized charitable deduction.

Reporting and audit-readiness checklist

  • Confirm the charity’s 501(c)(3) status (IRS Tax Exempt Organization Search).
  • Save wallet transaction records, exchange price evidence for FMV, and the charity’s written acknowledgment.
  • File Form 8283 for gifts over $500; obtain any required appraisals or donee signatures for gifts over $5,000.
  • Retain records for at least three years (or longer if you carry over excess charitable deductions).

See our article on Cryptocurrency Recordkeeping Best Practices for Tax Reporting for templates and sample record formats.

Advanced considerations

  • State tax differences: State rules vary. Some states conform to federal rules for charitable deductions; others do not. Check your state tax guidance or consult your tax professional.
  • Corporate donors: Corporations have different AGI-equivalent limits and reporting rules. Corporations donating appreciated property should consult a tax advisor for corporate deductions and financial statement effects.
  • Donor-advised funds and private foundations: Deduction limits and rules can differ; private foundations typically have lower AGI limits for appreciated property.

Final professional tips

  • Plan ahead. If you expect to make sizable charitable gifts, coordinate timing and holdings in advance of year-end.
  • Work with the charity. Ask the nonprofit how they prefer to receive crypto, what processors they use, and how they value gifts.
  • Use professional help. Work with a CPA or tax attorney when gifts are large, the asset cost basis is unclear, or you expect AGI-limit interactions.

Disclaimer: This article is educational and does not constitute tax or legal advice. Individual tax situations vary; consult a qualified tax professional before making donation decisions.

Authoritative sources and further reading

Related FinHelp resources

If you’d like, I can provide a short checklist you can give to a charity before making a transfer or a sample Form 8283 workflow for crypto gifts.