How do I calculate my charitable contribution deduction when I donate virtual currency

To calculate your charitable contribution deduction when you donate virtual currency, you need to determine the fair market value (FMV) of the virtual currency at the time of the donation. The specific calculation depends on how long you have held the virtual currency:

1. Held for More Than One Year: If you have held the virtual currency for more than one year, your charitable contribution deduction is generally equal to the FMV of the virtual currency at the time of the donation.
2. Held for One Year or Less: If you have held the virtual currency for one year or less, your deduction is the lesser of your basis in the virtual currency or its FMV at the time of the contribution.

For example, if you donate virtual currency that you have held for more than one year and its FMV at the time of donation is $10,000, your deduction would be $10,000. If you have held the virtual currency for one year or less, and your basis in the virtual currency is $8,000 while its FMV at the time of donation is $10,000, your deduction would be limited to $8,000.

Additionally, if the value of the donated virtual currency exceeds $5,000, you are required to obtain a qualified appraisal to substantiate the deduction. The value reported on a cryptocurrency exchange cannot be used in place of a qualified appraisal. Failure to obtain a qualified appraisal will result in the disallowance of the deduction, even if the value is readily ascertainable from an exchange.

For more detailed information on charitable contribution deductions, you can refer to IRS Publication 526, Charitable Contributions.

Sources:
Notice 2014-21
Publication 526 (2023)
CCA 202302012
Crypto Donations Must Be Appraised for Charitable Deduction