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In 2022 I made a donation of $100 to a tax-exempt charity, which I paid using cryptocurrency (let's say 123.456 units of currency XYZ). The tax receipt I got from the charity acknowledges a donation of $100 but says nothing at all about cryptocurrency, probably because their payment processor (BitPay) converted it transparently.

For purposes of US income tax, I am not sure if this was:

  1. a contribution of property, namely the 123.456 XYZ, or

  2. a sale of 123.456 XYZ for $100, followed by a cash contribution of $100.

In case 1, in order to claim a deduction on Form 1040 Schedule A (yes, I am itemizing), IRS Pub 526 says I am supposed to have a receipt that includes:

A description of the property in sufficient detail under the circumstances (taking into account the value of the property) for a person not generally familiar with the type of property to understand that the description is of the contributed property.

Well, my receipt doesn't have that. There is an exception when it is "impractical to get a receipt", in which case I would be allowed to substitute my own written records, but I am not sure if that applies here.

In case 2, I suppose I would report the sale on Form 8949, thus paying capital gains tax, and then claim the $100 deduction on Schedule A as above.

Which is correct?

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  • Is this specific to crypto? What if you donate or buy something in currency X but it's sold in currency Y ?
    – BCLC
    Commented Jan 22, 2023 at 12:00
  • Well, cryptocurrency is considered under US tax law to be "property" and not currency. It would probably be the same if I had donated a lump of silver, but I don't know about foreign currency. There is a key difference between "donate" and "buy": donations are tax deductible, but only if specific documentation ("substantiation") requirements are met.
    – Nate Eldredge
    Commented Jan 22, 2023 at 15:45

1 Answer 1

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You are taxed on the value of the donation. If the receipt gives a value in dollars, that's what you use unless you want to try to show that they misvalued it somehow (the IRS is going to be very skeptical...).

If they didn't give a value, it's your responsibility to figure out what the value was at the time of donation. For stock shares, that's easy; closing price on that day. For physical objects you need to have some reference to establish the value; checking what equivalent objects in equivalent condition have recently successfully sold for on eBay has become a commonly used shortcut for that. I have no idea what the best practice would be for cryptocurrency but I would hope it's more like the former than the latter.

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  • Sure, either way, the amount of the deduction will be $100. It's a popular currency with an active market, so there should be plenty of evidence that $100 was the correct value. My question is (a) do I have enough documentation to meet the IRS substantiation requirement, and (b) do I need to report a capital gain?
    – Nate Eldredge
    Commented Jan 22, 2023 at 4:40
  • (a) yes. (b) No clue.
    – keshlam
    Commented Jan 22, 2023 at 4:41
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    With most securities, if you donate the security to a tax exempt organization, the capital gains are technically theirs but since they're exempt they don't get taxed on them. (This is why it's preferable to donate the security, if the org can handle that, rather than cashing it out and donating the money; effectively it costs you less per amount donated.) I have no least clue whether cryptocurrency gains would be handled the same way. Maybe the org you donated to can answer that.
    – keshlam
    Commented Jan 22, 2023 at 6:50
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    In respect to tax laws, I believe it's irrelevant what the charity "acknowledges" or prints out on the receipt - no, it is very much relevant. The claim of transfer of asset needs to be substantiated and in the scenario described here there's absolutely nothing the OP can show that they intended to transfer XYZ, and that the charity in fact received XYZ. In the question the OP clearly states that they intended to donate $100.
    – littleadv
    Commented Jan 23, 2023 at 7:13
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    @keshlam that is true, but not exactly. Limits on transfer of assets and transfer of cash are different, but more importantly - the OP is asking about capital gains tax which should still be paid, and so is potentially NIIT and the additional medicare, depending on the situation. It is unclear if the OP is itemizing the deductions and can reduce the income by the value of the donation, but while with transfer of assets it wouldn't matter - with transfer of cash it does. So yes, there's a problem here for the OP.
    – littleadv
    Commented Jan 23, 2023 at 7:16

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