The “Salvator Mundi” by Leonard da Vinci, a painting that was created over 600 years ago sold for $450 million in 2016. The price was obtained by the classics and the endless desire to possess them has created a desire. A strong desire that has opened a very lucrative marketplace for limited number of artworks. However, during the past few years, artworks linked to blockchain technology have dominated the market. These artworks known as NFTs or Non-fungible tokens, have upended valuation and demand. They have also created a level of volatility never seen before by art collectors.
For instance, “The merge” by digital artist Pak, sold for $91.8 million in December of 2021. But sadly, the current valuations of NFTs seem to have slumped. Many are blaming this slump in price on the “crypto winter” and they are quite correct.

Charitable Deduction Limitations With NFTs
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In general, individual taxpayers can claim charitable deductions of up to 60% of their adjusted gross income (AGI) for cash donations to public charities. Cash gifts made to private foundations are limited to 30% of AGI for cash gifts or 20% for appreciated securities. Unused charitable deductions can generally be carried forward for five years.
Generally, for gifts of non-cash property like artworks, the donor may deduct up to about 30% of the asset’s fair market value. However this can only be possible if the property is related to the charity’s exempt purpose. This is known as the “related use requirement.” For example, donation of artwork displayed at an art museum will definitely satisfy this requirement.
But then, if a donor gives artwork to a charity whose mission is to reduce child poverty, the donor will only need to deduct the lesser of cost basis. Or, the donor may decide to reduced 30% of the asset’s fair market value. Notwithstanding, these limitations are contributors of non-cash items to avoid capital gains tax and potentially reduce the gift and estate tax liability.
Substantiation for NFTs Donation Requirements
Non-cash contributions must satisfy certain substantiation requirements to secure a charitable deduction.
In the case of artwork worth $5,000 or more, the following requirements should be met:
- A contemporaneous written acknowledgment from the charity;
- A “qualified appraisal“ of the donated property; and
- A completed IRS Form 8283 attached to the tax return.
A qualified appraisal must follow the Uniform Standards of Professional Appraisal Practice, as developed by the Appraisal Standards Board of the Appraisal Foundation, and include, without limitation, the information described in Treasury Regulation Section 1.170A-17(a)(3):
- A description in sufficient detail under the circumstances, taking into account the value of the property, for a person who is not generally familiar with the type of property to ascertain that the appraised property is the contributed property;
- The condition of the property;
- The property’s fair market value; and
- The information regarding the appraiser. These includes the appraiser’s name, address, and taxpayer identification number and qualifications to value the type of property, including the appraiser’s educational experience.
Donating NFTs
An NFT is a digital asset ran on blockchain technology. Unlike owners of traditional forms of artwork, NFTs do not require any storage space, maintenance, or restoration costs. More importantly, the ability to establish the provenance of an NFT is through blockchain technology, which serves as a living ledger that is immutable and forever tracks ownership.
The IRS currently treats NFTs and all digital currencies, such as bitcoin, as property or commodities, not as currency. But Congress and other authorities are considering regulating and classifying differently.
If NFTs are ultimately classified as non-cash contributions, then the donation of NFTs will need to consider the substantiation requirements applicable to non-cash contributions, which may prove problematic.