As cryptocurrencies’ profiles rise in the marketplace, your clients are likely to begin asking questions about the possibility of using cryptocurrency holdings as part of their charitable giving plans. Interest in this technique has spiked in recent weeks, especially after the University of Pennsylvania’s announcement of a landmark $5 million gift of bitcoin to support the Wharton School’s Stevens Center for Innovation in Finance.
In many ways, advising clients about charitable gifts of cryptocurrency parallels the strategies you routinely use to advise clients about a gift of any highly-appreciated asset. For example, cryptocurrency gifts require documentation similar to what’s necessary to substantiate gifts of real estate, closely-held stock, and collectibles.
- In the case of cryptocurrency held by your client as an investment for more than one year, the rules for gifts of long-term capital gains assets apply. In this situation, the client’s gift of cryptocurrency is valued at its fair market value at the time of the donation.
- The receiving charity must sign your client’s IRS Form 8283 for your client to be eligible for the charitable deduction (unless the value of the gift is less than $500).
- A qualified appraisal is required for gifts with a value greater than $5,000.
- The recipient organization is required to file IRS Form 8282 if all or a portion of the cryptocurrency is sold or converted to cash within three years of the gift. As with gifts to charity of other appreciated assets, the charity does not pay tax on the gains.
- The IRS has issued guidance for charitable gifts of cryptocurrency, including confirmation that the usual rules apply for a “contemporaneous written acknowledgment,” even though cryptocurrency is treated and reported by the charity as a non-cash gift.
Although many donors are ready to incorporate cryptocurrency into their charitable giving plans, not all nonprofits are quite ready to accept it. Encourage your clients to be patient, as many organizations, including Cobb Community Foundation, are in the process of conducting the research and due diligence necessary to ensure a seamless gift acceptance progression for accepting and converting the gift to cash. Stay tuned.