Gifting Ethereum, Bitcoin, or Litecoin to charity and the tax deductibility thereof.

I was a lucky person to be able to buy into Ethereum almost as soon as it became available on Coinbase.com, and over the past year starting in January I enjoyed huge gains in my holdings. Like many, I wondered about the tax implications of selling crypto, and decided that since I am charitably inclined I would just give some of it away instead of writing a check to the charity of my choice. This is a great way to use your crypto-assets because once you hold them a year, you are then able to give them away and realize a deduction from our benevolent overlords at the IRS of the full value of the gift from your income (limited to 30% of your AGI).

As an example, say you purchased ETH in August of 2016 for $10 per coin, and then in September of 2017 you gave away 100 tokens while the price was $300. You would be eligible to deduct $30,000 from your income as long as the $30,000 doesn't exceed 30% of your adjusted gross income. If your income was $100,000 and you deducted $30,000 from it, it could save you up to 30% or more ($9,000) on your taxes depending on your state income tax rates. In addition to that consider the cost of cashing out the crypto directly: If you sold the same $30,000 of ETH in September, you would be liable for long term capital gains of up to 20% federal depending on your tax bracket. In addition to this you could owe long term capital gains to your state as well. You could owe up to 25% of the gains which in this case would be 0.25X$29,000 or $7,250 in taxes. There are other ways it could affect your taxes too, if you are close to any phase outs. You should check with your CPA on this, because I'm not an accountant and this is not tax advice.

Through a long and tedious process of trying to figure out how best to actually give it to the charity of my choice I found what I think is one of the better options. Fidelity Charitable allows clients to set up a Donor Advised Fund (DAF) and they will take donations through Coinbase. In order for the gift to be considered deductible since it is not considered to be a security and therefore the value can't be accurately ascertained in a way that satisfies the aforementioned infinitely wise betters of ours, we are required to get an official appraisal. The cost for this ranges from $600 up to $3000 from what I have seen. The appraisals must be done for EACH gift in a given year so if you give some now and some at the end of the year, you would have to have two separate appraisals. Therefore it seems like a much better idea to give all that you want to give at one time. The good thing about using the DAF is that you can give to the account and take the deduction in the year you give, but then grant the money out later on as you deem appropriate. So to continue the example, if you contributed $30,000 of ETH to the DAF you could immediately grant out $10,000 to a charity this year and then $10,000 to another charity this year and $10,000 to yet another charity in 2018 if you wanted.

Here are some key takeaways that I learned through this process:

1. Make sure you hold it a full year before giving it away. If you were to give away the ETH mentioned above in July before you had held it a year, your deduction would only be $1,000 instead of $30,000.

2. Give away as much as you want to give all at one time instead of multiple gifts since you have to pay for each appraisal. You probably need to be giving away at least $5,000 worth for it to be feasible to incur the appraisal cost.

3. Fidelity was very helpful to me for this. I looked at other options but theirs seems to be the best for my purposes. They can take any coin offered on Coinbase. (Disclaimer- I do not work for Fidelity, and get no money for recommending this)

4. Consult with your accountant to ensure that this makes sense in your situation. As I mentioned, I am not an accountant and this is not tax advice. There are any number of extenuating circumstances that could affect whether this makes sense or not for you.

If anyone has a better way of gifting crypto assets, I would love to hear it.

Happy gifting!