Donating bitcoin: how much is tax-deductible

A bitcoin donation to a charitable organisation is tax-deductible in Germany, and it counts as a donation in kind. How much you may deduct turns on a single question that is written into the law and that hardly anyone else mentions: would a sale of this bitcoin have been taxable at the moment of the donation?

If the answer is no, because the one-year holding period has elapsed, you may use the fair market value, that is the price on the day of the donation. If it is yes, because you bought the bitcoin only eight months ago, the deduction is capped at the carried-forward acquisition cost, meaning what you paid. On a position that has quadrupled, that is a difference of a factor of four, purely because of the date.

This rule is in section 10b paragraph 3 of the German Income Tax Act. Because the donation itself is not a sale, it also produces no taxable gain. The two together lead to a result that surprises many: donating out of an old holding sitting on a large gain is more favourable for tax than the detour through a sale.

The donation itself produces no taxable gain

Private disposals of crypto assets fall under section 23 of the Income Tax Act. What is taxable there is a gain from a disposal, and a disposal presupposes consideration. A donation is gratuitous: you give the bitcoin away and receive nothing for it. The trigger to which the tax attaches is therefore absent.