Gifting crypto to charity could potentially result in a tax break, but it's important to be aware of potential pitfalls.

• According to Fidelity Charitable, there has been a substantial increase in crypto gifts to non-profit organizations in 2024, with $688 million in crypto donations received as of Nov. 19.
• In order to receive a tax deduction for donating digital assets, you must list specific tax deductions instead of using the standard deduction.
• Not all charities will accept crypto, and higher-value gifts may require a "qualified appraisal," as per the IRS.

Donating cryptocurrency to charity during the holiday season could provide a tax break, but it's important to understand the implications before making the transfer, experts advise.

In 2024, Fidelity Charitable has seen a substantial increase in crypto gifts to charity, with $688 million in crypto donations received through Nov. 19, compared to $49 million in digital currency donations in all of 2023.

Similar to giving other types of property, donating crypto to charity has its own set of challenges, according to certified financial planner Juan Ros, a partner at Forum Financial Management in Thousand Oaks, California.

Donate 'the most highly appreciated asset'

Since 2018, claiming itemized tax breaks for charitable gifts, medical expenses, state and local taxes, among others, has become more difficult due to the higher standard deduction.

Donating profitable investments, such as cryptocurrency, is generally better than donating cash if you can claim the charitable deduction.

Donating crypto to charity can help you avoid capital gains taxes and receive a tax deduction based on the fair market value of the crypto, provided you've owned it for more than one year. The tax break is capped at 30% of your adjusted gross income for public charities.

Fidelity Charitable's vice president and charitable planning consultant, Kyle Casserino, stated that bitcoin and other coins have the potential to be "the most highly appreciated asset in an investor's portfolio."

According to Coin Metrics, the price of bitcoin was approximately $96,000 on December 4th, representing a nearly 120% increase in value year-to-date.

Experts suggest that donating crypto can be more complex than donating stocks.

Some charities don't accept crypto

Before donating crypto to a charity, it's important to check if they accept such gifts, as not all charities are willing or able to do so, Ros advised.

The percentage of the largest U.S. charities accepting cryptocurrency donations increased from 49% in the previous year to 56% as of January, according to The Giving Block, a platform for digital currency gifts and fundraising.

Most large donor-advised funds are capable of accepting digital currency, Ros stated.

Eligible nonprofit organizations can receive funds from donor-advised funds, which function like a charitable checkbook, providing the donor with an immediate tax deduction.

Some donor-advised funds enable investors to retain digital assets within the fund.

You may need a 'qualified appraisal'

The deduction for a profitable investment held for over a year is calculated using the fair market value of the asset.

According to Andrew Gordon, a tax attorney, certified public accountant and president of Gordon Law Group, while it is straightforward to comply with IRS requirements for publicly traded stocks, additional documentation is necessary for digital assets valued over $5,000.

To support that deduction, you must provide a qualified appraisal that meets IRS requirements, he stated.

If the donated assets exceed $500,000, you must include the appraisal with your tax return, according to the IRS.

To avoid jeopardizing your charitable deduction during an audit, you must adhere strictly to the IRS appraisal criteria, as Ros emphasized.