As more individual taxpayers have contributed cyber assets to 501(c)(3) not-for-profit organizations, the tax treatment of these contributions has come to the forefront. When individuals donate cryptocurrency (e.g., Bitcoin) to a 501(c)(3) charitable organization, the tax treatment of the contribution depends on the donor’s holding period. before making the donation. While donations of cryptocurrency to a 501(c)(3) organization are deductible under IRC §170(c), the IRS does not treat cryptocurrency as a cash contribution. Under IRS Notice 2014-21, the IRS treats cryptocurrency as property, not currency, for federal tax purposes, so the rules for donating property apply. This article outlines the differences in tax treatment depending on how long the cryptocurrency has been held.
Held for One Year or Less (Short-Term Capital Property)
If the donor owned the cryptocurrency for one year or less before contributing it, it is classified as short-term capital property. When donating short-term capital property to a 501(c)(3) organization, the donor’s charitable deduction is limited to the lesser of the fair market value (FMV) at the time of the contribution or the donor’s cost basis. No capital gain is recognized at the time of donation, but the donor’s charitable deduction is limited to the cryptocurrency’s cost basis.
Held for More Than One Year (Long-Term Capital Property)
If the donor has held the cryptocurrency for more than one year prior to the contribution, the coins are considered long-term capital property. When donating long-term capital property to a 501(c)(3) organization, the donor is entitled to a charitable deduction equal to the FMV of the cryptocurrency at the time of the contribution. The donor does not recognize any capital gain on the appreciation of the cryptocurrency.
Valuation
To value cryptocurrencies listed on an exchange, a preparer should use reliable data from the exchange to determine the fair market value (FMV) on the date of donation. Taxpayers may take the median or average of the high and low prices on the date of contribution, or the closing price as reported by the exchange.
If the asset is not listed on a US exchange, preparers should use another fair and reasonable valuation method (e.g., a reputable cryptocurrency data source).
Reporting Requirements
A donor must report a donation on IRS Form 8283 if the value exceeds $500. An appraisal may be required if the total deduction for all such property exceeds $5,000, and if the donated cryptocurrency is not listed on a recognized cryptocurrency exchange.
Other Cyber Assets
The IRS treats non-fungible tokens (NFTs) as property, not currency. Unlike fungible cryptocurrency, NFTs are non-fungible, often representing digital art, music, or collectibles. This makes valuation for purposes of deductibility more challenging.
If the NFT is capital gain property (held for more than one year) and the charity uses it in a way related to its exempt purpose, the donor may deduct the property’s FMV at the date of donation. If the charity’s use is unrelated to its mission, or if the NFT is ordinary income property (held for one year or less), the deduction is limited to its cost basis. NFTs valued over $5,000 require a qualified appraisal and IRS Form 8283. The appraisal must account for the NFT’s uniqueness, provenance, and market comparables.
Because NFTs are often illiquid and volatile, establishing FMV is difficult. IRS scrutiny is likely, especially for high-value or speculative assets. While the One Big Beautiful Bill Act (OBBBA) (P.L. 119-21) allows taxpayers who do not itemize their deductions to allows an above-the-line deduction of up to $1,000 ($2,000 for joint returns) for tax years 2026 through 2028, contributions of cyber assets are considered to be contributions of property, and thus not eligible for this treatment. The tax benefits of donating cyber assets to a 501(c)(3) organization are maximized when the cryptocurrency has been held for more than one year before donation, allowing the donor to deduct the full fair market value and avoid paying capital gains tax on any appreciation.
To substantiate deductions and support reported FMV in case of an IRS audit, taxpayers should maintain detailed records regarding the acquisition and holding period of cyber assets, including purchase receipts, blockchain transaction histories, and any documentation related to the cyber asset’s creation and sale.
