A Gift of Cryptocurrency
A charitable gift of cryptocurrency is treated similarly to a gift of appreciated stock, with the same potentially powerful tax benefits.
OPTION 1—an outright gift of cryptocurrency
Cryptocurrency is a decentralized digital currency used by millions of people worldwide. If you are one of them, you may find that you own cryptocurrency that is currently worth much more than what you paid for it. If so, and if you’ve held it for more than one year, giving cryptocurrency lets you make a big impact for a relatively low cost. Consider the double tax benefit:
- You may qualify for an immediate income tax charitable deduction for the full value of the cryptocurrency if you itemize (subject to limitations).
- You owe no capital gains tax on the appreciation.
We will convert your donated digital currency into cash and put it to immediate use in our efforts to redefine the frontier of higher education. It will be directed to the area of greatest need unless you specify a particular program or area you would like to support.
Tax notes
- A gift of cryptocurrency over $5,000 requires an appraisal that must be reported on IRS Form 8283.
- Only gift amounts that surpass 0.5% of your AGI qualify for an income tax deduction.
- If you are in the top 37% tax bracket, the tax benefit of your deduction will be capped at 35%.
- A gift of cryptocurrency held for more than one year may be deductible up to 30% of your adjusted gross income. Any excess deduction can be carried over for up to five years.
There are many different digital currencies available. (Note that the cryptocurrencies we accept can change frequently. Please check with us to confirm the acceptance of your digital currency.)
OPTION 2—funding a donor-advised fund with cryptocurrency
Another charitable option may be to transfer cryptocurrency to your donor-advised fund (DAF). Not all DAFs accept cryptocurrency, so confirm the viability of this approach before transferring any digital currency from your digital wallet to your account.
Evaluate the fit.
Cryptocurrency held for more than one year may be a particularly good gift option to consider if you:
- Own appreciated digital currency
- Want to bypass the capital gains tax on the significant appreciation
- Want to take a federal income tax charitable deduction for the full amount of your gift (subject to limitations)
See how it works.
For the past few years, Liam has given HPU a check for $10,000. This year, he realizes that the cryptocurrency he purchased three years ago as an investment has significantly increased in value. He decides to give us digital currency worth $10,000 that he purchased for $1,000. Since Liam’s other itemized deductions already exceed the 0.5%-of-AGI giving floor, he is eligible to take a deduction for the full $10,000 value of the cryptocurrency. However, because his tax bracket is 37%, his tax benefit is limited to 35%. Additionally, by donating appreciated cryptocurrency, he avoids paying capital gains tax on the $9,000 of unrealized gains. The tax savings are substantial.
| Gift of Cash | Cryptocurrency | |
|---|---|---|
| Liam's gift | $10,000 | $10,000 |
| Income tax savings (37% tax bracket capped at 35%) | $3,500 | $3,500 |
| Capital gains tax savings (23.8% of $9,000) | -- | $2,142 |
| Tax savings generated by Liam's gift | $3,500 | $5,642 |
By donating cryptocurrency instead of cash, Liam not only supports our mission but also maximizes his tax savings, making his gift even more impactful.
Consider your timing.
Donating major cryptocurrencies can be as fast as donating cash, meaning you could donate on December 31 and still qualify for a charitable deduction this year. For smaller, less liquid cryptocurrencies, please check with us first to see if we can accept your donation, meaning you should initiate the donation process earlier in December.
We can help.
We can provide you and your advisors with the information you need to request a transfer from your cryptocurrency provider, including our legal name and account. We can also provide guidance on the valuation and substantiation requirements for a gift of cryptocurrency.