Navigating Crypto Donations and Gifts for Tax Purposes in New York

For philanthropic crypto holders and families in New York, understanding the tax implications of gifting and donating digital assets is crucial. The Internal Revenue Service (IRS) and the New York State Department of Taxation and Finance (DTF) largely classify cryptocurrency as property, not currency, which dictates how these transactions are treated for tax purposes.

Tax Treatment of Gifting Crypto vs. Donating Crypto to Charity

The tax consequences differ significantly depending on whether you gift cryptocurrency to an individual or donate it to a qualified charity.

Donating Cryptocurrency to Charity

Donating appreciated cryptocurrency directly to a qualified 501(c)(3) charitable organization can be a tax-efficient strategy. If you’ve held the crypto for more than one year (making it long-term capital gain property), you can generally deduct its fair market value (FMV) on the date of the donation and avoid paying capital gains tax on the appreciation. If the crypto was held for one year or less, the deduction is typically limited to your cost basis.

Gifting Cryptocurrency to Individuals

When gifting crypto to an individual, the donor is typically responsible for any potential gift tax implications. For 2024, the annual gift tax exclusion is $18,000 per recipient, increasing to $19,000 per recipient for 2025. If the value of gifts to any one person in a year exceeds this amount, the donor must file IRS Form 709, United States Gift (and Generation-Skipping Transfer) Tax Return. While filing Form 709 is usually for informational purposes, larger gifts will reduce your lifetime gift tax exemption ($13.61 million for 2024 and 2025, or $13.99 million in 2025).

For the recipient, receiving a crypto gift is generally not a taxable event. However, when the recipient later sells or disposes of the gifted crypto, they will owe capital gains tax. The gain or loss is calculated using the original cost basis and holding period of the donor.

NY State Rules on Gifted Crypto and Capital Gains

New York State aligns with federal guidance by treating cryptocurrency as property. However, New York State has a distinct approach to capital gains. Unlike federal tax law, which differentiates between short-term and long-term capital gains, New York State does not. All capital gains from cryptocurrency transactions are taxed as part of your ordinary income, subject to the state’s income tax rates, which can range from 4% to 10.9%. Residents of New York City may also face an additional city income tax, ranging from 3.078% to 3.876%.

As of August 2025, New York lawmakers are actively considering a bill (Assembly Bill 8966) that proposes a 0.2% excise tax on the sale or transfer of digital assets, including Bitcoin and Ethereum. If enacted, this bill could take effect as early as September 1, applying to all sales and transactions.

Reporting Charitable Contributions in Crypto

Reporting crypto donations to the IRS requires adherence to specific guidelines:

Schedule A and Form 8283: To claim a charitable deduction for crypto, you must itemize deductions on Schedule A (Form 1040). For noncash contributions exceeding $500, IRS Form 8283, Noncash Charitable Contributions, must be completed and attached to your tax return.
Qualified Appraisal: If your cryptocurrency donation is valued at over $5,000, a “qualified appraisal” is mandatory. Section B of Form 8283 must be completed, requiring the appraiser’s signature and the charity’s acknowledgment. The IRS explicitly states that digital assets are not considered publicly traded securities for these rules, meaning the appraisal requirement applies even if the crypto is traded on an exchange. For very large gifts of property valued at $500,000 or more, the qualified appraisal must be attached directly to the return.
Contemporaneous Written Acknowledgment: For any single contribution of $250 or more, you must obtain a contemporaneous written acknowledgment from the charitable organization. This document should describe the donated property and state whether any goods or services were received in return.

Charitable organizations receiving crypto donations are also subject to reporting requirements. They must report noncash contributions on Schedule M of their Form 990. Furthermore, if the charity sells, exchanges, or otherwise disposes of donated crypto (for which a Form 8283 was required) within three years of receipt, they may need to file IRS Form 8282, Donee Information Return, and provide a copy to the donor.

Strategies to Maximize Deductions

Strategic planning can help New York residents maximize the tax benefits of their crypto philanthropy:

Donate Appreciated Long-Term Crypto: Donating cryptocurrency you’ve held for over a year and that has increased in value allows you to deduct the fair market value of the asset and bypass capital gains taxes on the appreciation. This is generally more tax-efficient than selling the crypto, paying capital gains tax, and then donating the cash proceeds.
Consider Donor-Advised Funds (DAFs): Contributing crypto to a Donor-Advised Fund can offer an immediate tax deduction upon funding and simplify the administration of your charitable giving over time.
Tax-Loss Harvesting (Federal): While not directly a donation strategy, for federal tax purposes, you can offset capital gains with capital losses. If you have underperforming crypto assets, selling them at a loss can reduce your overall taxable gains. Under current IRS rules, the wash sale rule (which prevents immediately repurchasing a security after selling it for a loss) does not apply to cryptocurrency, offering more flexibility for tax-loss harvesting strategies.

Keeping Compliant Records for IRS and NY State

Accurate and meticulous record-keeping is paramount for crypto transactions, especially for tax purposes. Both the IRS and New York State demand thorough documentation.

Essential records to maintain include:

Transaction Details: Date of each transaction, including purchases, sales, exchanges, and dispositions.
Fair Market Value (FMV): The FMV of the cryptocurrency in U.S. dollars at the time of acquisition and at the time of any disposition (gift or donation).
Cost Basis: Your original purchase price, including any fees.
Capital Gains or Losses: The calculated gain or loss from each taxable event.
Receiving Parties: Identification of the individual or organization to whom crypto was gifted or donated.
Documentation for Donations: Keep wallet receipts or bank records, and the charity’s contemporaneous written acknowledgment. For donations over $5,000, retain the qualified appraisal and the completed Form 8283.

The IRS is increasing its scrutiny of digital asset transactions. Starting in 2026, custodial brokers will be required to file Form 1099-DA for digital asset transactions that occurred in 2025, providing greater transparency to the IRS. Utilizing specialized crypto tax software can help you track transactions, calculate gains/losses, and generate the necessary tax reports, ensuring compliance with both federal and New York State tax obligations.

Sources

This article is for informational purposes only and does not constitute legal or tax advice. Consult a qualified professional for advice specific to your situation.

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