Donating Crypto to Charity: Deduction Rules and the Qualified Appraisal Trap

Giving appreciated crypto to charity is one of the few moves in the tax code where everyone wins: the charity gets the full value, you avoid tax on the gain, and you may get a deduction for the full fair market value. It is also one of the easiest deductions to lose on paperwork.

The trap is the qualified appraisal. The IRS has said that an exchange price is not a substitute, and a missing appraisal can cost the entire deduction.

Donating is not a sale

The IRS virtual currency FAQs (Q34) say that if you donate virtual currency to a charitable organization described in section 170(c), you do not recognize income, gain or loss from the donation. A coin bought for $5,000 and donated when worth $50,000 produces no $45,000 gain on your return.

That alone is valuable. If you sold first and donated the cash, you would owe tax on the gain, including potentially the 3.8 percent net investment income tax, and donate only what was left.

How much you can deduct

The FAQs (Q35) say your deduction is generally the fair market value of the crypto at the time of the donation if you held it more than one year. If you held it one year or less, the deduction is the lesser of your basis or the fair market value.

That makes long-term, appreciated crypto the best candidate. Short-term crypto with a gain gives you a deduction only for basis. Crypto that has fallen below your basis is usually better sold first: selling realizes a capital loss you can use, and donating the cash gives you a deduction for the cash.

The charitable deduction is an itemized deduction and is subject to percentage-of-income limits and the other rules of section 170. Run the full return before assuming the whole value is deductible this year.

The qualified appraisal requirement

Section 170(f)(11)(C) requires a qualified appraisal for contributions of property for which a deduction of more than $5,000 is claimed. In CCA 202302012, released in January 2023, the IRS Chief Counsel applied that rule to cryptocurrency.

The facts: a taxpayer donated cryptocurrency and claimed a $10,000 deduction based on the price listed on the exchange where it traded. She did not obtain a qualified appraisal, arguing the crypto had a readily ascertainable value.

The memo concluded a qualified appraisal was required and the deduction was disallowed. The exceptions to the appraisal rule cover specific kinds of readily valued property, such as cash, publicly traded securities, inventory, intellectual property and certain vehicles. Publicly traded securities are defined by reference to section 165(g)(2), which covers stock and certain debt. Cryptocurrency is not on the list, so no exception applies.

The memo also rejected reasonable cause. Relying on an exchange price instead of trying to get a qualified appraisal is not reasonable cause; the reasonable cause exception exists for good-faith attempts that fall short, not as an alternative to compliance. The memo is not precedent, but it is the IRS's stated view.

What counts as a qualified appraisal

Section 170(f)(11)(E), as summarized in the memo, defines a qualified appraisal as one treated as qualified under the regulations and conducted by a qualified appraiser in accordance with generally accepted appraisal standards. A qualified appraiser is an individual who has earned an appraisal designation from a recognized professional organization or met minimum education and experience requirements, regularly performs appraisals for compensation, and meets any other requirements in the regulations. The memo points to Treas. Reg. 1.170A-17 and 1.170A-13.

In practice, that means engaging an appraiser who handles digital assets, before your return is filed, and keeping the appraisal with your records.

The other paperwork

• Contemporaneous written acknowledgment. The FAQs (Q36) say a deduction of $250 or more requires a contemporaneous written acknowledgment from the charity.
• Form 8283. The FAQs say that for deductions over $5,000, you generally need the charity's signature on Form 8283. The memo's taxpayer completed only part of the form, and the Tax Court case cited in the memo noted the form's repeated references to appraisals as notice that one is needed.
• Your basis and holding period records, which determine whether the deduction is fair market value or basis.

The FAQs (Q37) add that if the charity sells or otherwise disposes of the donated crypto within three years, it generally files Form 8282. The charity's later sale does not change your deduction, but it puts another record in the IRS file.

When is the gift made?

CCA 202302012 notes that a charitable contribution of cryptocurrency is generally made at the date and time the crypto is transferred, as evidenced by its recording on the blockchain, or when legal title passes. Keep the transaction hash. For a year-end gift, make sure the transfer is recorded before the year ends.

Which units are you giving?

A donation is a transfer, and the lot identification rules in Treas. Reg. 1.1012-1(j) apply to transfers as well as sales. Rev. Proc. 2024-28's examples apply its rules to gifts as well as sales. If you hold several lots, identify the oldest, most appreciated long-term lot before the transfer. Without identification, first in, first out applies within that wallet or account. See specific identification.

A worked example

You bought 2 ETH in 2020 for $800 total. In December 2026 they are worth $7,000. You give them to a qualified charity.

• You recognize no gain on the $6,200 of appreciation.
• Held more than one year, so the deduction is generally the $7,000 fair market value, subject to the percentage limits.
• Because you claim more than $5,000, you need a qualified appraisal, a completed Form 8283 with the charity's signature, and a contemporaneous written acknowledgment.

Compare selling first: a $6,200 long-term gain, tax on it, and a smaller cash gift. Donating the coins directly is better in almost every way, if the paperwork is done.

Common mistakes

• Claiming the exchange price as the value on a gift over $5,000 without an appraisal. This is exactly the fact pattern in CCA 202302012.
• Getting the appraisal after the return is filed. Section 170(f)(11)(C) ties the appraisal to the year the deduction is claimed.
• Donating short-term crypto and claiming fair market value. The deduction for property held one year or less is generally limited to basis.
• Donating depreciated crypto instead of selling it and donating the cash.
• Missing year end. The gift is generally made when the transfer is recorded on the blockchain or legal title passes.
• No contemporaneous written acknowledgment from the charity for a gift of $250 or more.

A year-end timeline

If you plan a December gift, start in October. Confirm the charity accepts the asset and how, line up a qualified appraiser who handles digital assets, record your lot identification, and make the transfer with enough time to be recorded on chain before December 31. Collect the acknowledgment and the appraisal, and complete Form 8283 with the charity's signature before you file.

Larger and structured gifts

For large positions, a charitable remainder trust can provide income back to you while deferring the gain. See the existing guide on crypto and charitable remainder trusts. The appraisal rules still apply to the contribution.

Appraisal costs are a real consideration for gifts just over the $5,000 line. Compare the fee to the tax benefit before you plan a gift of that size, and remember that splitting what is really one gift into several small ones to stay under the threshold is the kind of arrangement the substantiation rules are designed to see through.

Donating crypto is a smart move with a simple rule attached. Over $5,000, get the appraisal. Exchange prices are evidence of value; they are not an appraisal.

Frequently asked questions