Qualified appraisals are now needed for donations of digital assets over $5,000.

As you turn your focus to year-end charitable contributions, we want to make you aware of an important new requirement for contributions made using digital assets. Digital assets include – but are not limited to – convertible virtual currency and cryptocurrency, stablecoins, and non-fungible tokens (NFTs).

Specifically, the IRS Office of Chief Counsel released guidance this year that outlines specific steps taxpayers must take to successfully achieve a charitable contribution deduction for donations of digital assets over $5,000.

The rationale behind this guidance stems from the unique nature of these assets. While digital assets can be leveraged for payment for goods and services, the IRS does not treat them as currency, but rather as property. In other words, digital assets are not cash, a publicly traded security or, for that matter, a type of easily valued property.

This guidance from the IRS seeks to address this valuation challenge for both taxpayers and charitable organizations by mandating that taxpayers seek a qualified appraisal to be eligible for deductions for digital asset donations exceeding a $5,000 threshold. It should be noted that a value reported on a cryptocurrency exchange to value the contribution does not satisfy the qualified appraisal requirement. BPM professionals are available to fulfill the IRS qualified appraisal requirement for 2023 tax filings.

Although the regulatory landscape around these assets could shift in the year ahead, this requirement will need to be satisfied for taxpayers to which this situation applies in 2023. Our qualified appraisers can work with you to comply with this year’s guidance as well as any changes that may come in 2024. As you look to do good via charitable contributions of digital assets, while optimizing tax benefits, BPM is here to help with required qualified appraisals and related tax services.