104-3 Charitable/Philanthrophic Contributions and Deductions

Question 1

Charitable contribution is an allowable itemized deduction if:

Answer 1

1) the donor-taxpayer itemizes income tax deductions

2) Proper substantiation (record) is kept

Question 2

3 broad issues/questions the donor-taxpayer should be aware of

Answer 2

1) To which type of charity (public or private) is the charitable contribution made?
2) What type of property (e.g., cash or property) is contributed to the charity?
3) For what purpose does the charity use the property?

Question 3

2 types of charitable organizations for purposes of applying the charitable deduction income tax rules

Answer 3

1) Public charities (aka 50% organizations)

2) Private charities or foundations (aka 30% organizations)

Question 4

Public charity examples

Answer 4

Churches, educational organizations, nonprofit hospitals and medical research organizations, supporting organizations of state colleges and universities, and governmental units

Question 5

50% organizations (public charities)

Answer 5

Taxpayer contributions to such organizations may be deducted in an amount not to exceed 50% of AGI in the year of contribution
Exception: cash. Such contributions are limited up to 60% of taxpayer’s AGI

Question 6

Private charities

Answer 6

Typically funded and controlled by one individual, family, or corporation

Question 7

Substantiation document

Answer 7

Must indicate the amount of the contribution, the date the contribution was made, and the name of the charity

Question 8

Type of property contributed

Answer 8

1) Cash
2) Appreciated or long-term capital gain property (such as stock)
3) Ordinary income or short-term capital gain property

Question 9

Cash gift

Answer 9

The amount of the total deduction is the FMV of the cash, limited to an annual deduction of either 60% or 30% of the donor-taxpayer’s AGI, depending on the recipient of the gift
Carry-forward of 5 years is available for disallowed amounts

Question 10

Appreciated property (long-term capital gain property)

Answer 10

Donor must choose between:
A) total max deduction = FMV of appreciated property that’s no more than 30% of AGI if the recipient of the gift is a public charity and 20% if private

B) Total max deduction = only the tax basis in the appreciated property –> up to 50% of AGI deduction for public charity and still up to 20% if private

Question 11

Depreciated or loss property

Answer 11

Only FMV of depreciated property is deductible

Any capital loss is not deductible if the loss property is donated

If possible, donor should sell the property in an arms-length transaction to a 3rd person that would allow the donor to recognize the capital loss and then donate the cash received to the charity

Question 12

Ordinary income property

Answer 12

Includes artwork that is donated by the person who created the property or for whom it was prepared

Includes capital assets that have been held 12 months or less at the time of the donation

Question 13

Nondeductible property

Answer 13

1) foreign organizations (except certain Canadian, Israeli, and Mexican charities)
2) Individuals
3) Political groups
3) Cost of raffle, bingo, or lottery tickets
4) Tuition
5) Value of a person’s time or services donated to the charity (but related expenses such as mileage for the charitable use of an automobile are permitted)

Question 14

Bargain sale

Answer 14

When a donor-seller transfers property to a charity (or other tax-exempt organization) in exchange for a sum that is less than the FMV of the property

Considered part sale and part charitable contribution

Donor’s basis in the property and any appreciation are allocated on a pro rata basis to both the sale and gift portions

Donor must recognize the taxable gain on the sale portion to the extent it exceeds the allocated basis of the donor-seller

Question 15

Use-related property

Answer 15

The donor-taxpayer chooses to deduct the tangible personal property’s FMV, then the taxpayer is limited to 30% or 20% of AGI annually, depending on the identity of the recipient charity

If the taxpayer chooses to deduct the basis in the property, the limits are 50% and 20% respectively

Question 16

Use-unrelated property

Answer 16

The max deduction allowed is generally limited to the lesser of the FMV of the property or the donor’s tax basis in the property, limited to 50% or 20% of AGI annually, depending on the type of charity

Question 17

Where taxpayer reports charitable deduction

Answer 17

Form 1040 Schedule A

Question 18

When appraisal is NOT required

Answer 18

A) for noncash property over $500 and less than or equal to $5,000
B) Public stock that has a known FMV

Appraisal costs are not deductible to a charitable organization