TLDR. If you have long-term appreciated crypto, donating the tokens directly to charity can avoid capital gains tax and give you a fair market value deduction.
U.S. taxpayers recognize taxable capital gain when they sell appreciated crypto. By contrast, U.S. taxpayers who give crypto directly to an organization that qualifies as a public charity under section 501(c)(3) of the tax code do not recognize capital gain on the donation. Moreover, those individuals can deduct the fair market value (not just the cost basis) of any tokens they have held for more than one year, subject to the AGI limitations and substantiation requirements discussed below.
As a result, if you plan to make a charitable contribution out of your crypto holdings, it generally makes more sense to donate tokens directly if (1) they have appreciated in value and (2) you have held them longer than one year.
AGI limits
The tax code limits your annual charitable deduction to a percentage of your adjusted gross income (AGI). For donations of crypto, including stablecoins, and other property held for more than one year to most public charities, the limit is 30% of your AGI. By contrast, cash contributions to public charities generally are subject to a 60% AGI limit. You can carry forward deductions in excess of the AGI limit up to five years. Beginning in 2026, charitable contributions are deductible only to the extent they exceed 0.5% of your AGI.
Substantiation
If you donate crypto, including stablecoins, worth more than $5,000 to charity, you must obtain an appraisal from a credentialed appraiser (a so-called qualified appraisal), even if price quotes for the donated tokens are readily available. (The "publicly traded securities" exception to qualified appraisals does not apply to crypto.) Both the appraiser and the charity must sign a Form 8283, which you would attach to your tax return for the year of the donation along with a copy of the appraisal, if the value of your donation exceeds $500,000.
For donations of more than $500 but no more than $5,000 in value, only you need to sign the Form 8283.
For donations of $500 or less in value, no Form 8283 is required, but you should still keep records of the donation.
Other situations
An in-kind donation of tokens that have decreased in value rarely makes sense, because you would not be entitled to claim a capital loss and your deduction would be limited to the current fair market value of the tokens.
An in-kind donation of tokens that have appreciated in value but that you have held for one year or less also typically is inadvisable, because your deduction would be limited to your cost basis and your AGI limit would be lower (50%) than it would be for a donation of cash (60%).
Practical considerations
When donating crypto, ensure the receiving charity has the technical capability to accept and manage crypto donations. Many established charities now have dedicated crypto donation programs, while others may work with third-party platforms that facilitate crypto donations.
If you want to learn more about supporting the DeFi Education Foundation, please click here: https://secure.engageraise.com/donate/defieducationfoundation/
To subscribe to Cahill Publications Click Here
Originally published by Defi Education Fund.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
