Charitable Contributions - Review Questions Flashcards
Hudson wants to make a charitable contribution to the Disabled American Veterans (DAV). Will his contribution be tax deductible?
Choose the best answer.
True
False
True
A post or organization of war veterans is considered a qualified organization under Section 170. To deduct a contribution for federal income tax purposes, a taxpayer must make the contribution to or for the use of a qualified organization.
Erica makes a $1,000 contribution to her favorite charity, the Susan G. Komen Foundation. How can she show proof of her contribution for tax deduction purposes?
Choose the best answer.
1) She does not need to show proof because the amount was under $2,500.
2) She can provide a receipt as proof of the contribution.
3) She can provide a self-written letter stating her contribution.
2) She can provide a receipt as proof of the contribution.
If there is a single gift of more than $250, a receipt must be shown for the gift. Accurate records must be maintained regardless of the size of the gift.
Charitable Remainder Annuity Trust (CRAT):
Permits a fixed payment amount annually to a noncharitable beneficiary with the remainder going to charity.
A charitable remainder annuity trust is a trust designed to permit payment of a fixed amount annually to a noncharitable beneficiary with the remainder going to charity.
Charitable Remainder Unitrust (CRUT):
Permits payment of a periodic sum to a noncharitable beneficiary with a remainder to charity.
A charitable remainder unitrust is designed to permit payment of a periodic sum, usually expressed as a percentage of the assets of the trust, to a noncharitable beneficiary, with the remainder going to charity.
Charitable Lead Trust (CLT):
Permits taxpayer a deduction for the value of annuity or unitrust interest given to charity in trust, remainder going to the donor or beneficiary.
A charitable lead trust is essentially the reverse of a charitable remainder trust: the charity receives the annual payment and the noncharitable beneficiary receives the remainder interest. It is an income tax device that helps the taxpayer to reduce the tax burden of an unusually high-income year. If certain requirements are met, the taxpayer will be allowed a current income tax deduction for the value of the annuity or unitrust interest given to a charity in trust with the remainder going to a noncharitable beneficiary or the donor.
Which of the following may a taxpayer deduct when rendering a service to a qualified organization? (Select all that are true.)
1) out-of-pocket transportation expenses
2) the cost of lodging while away from home
3) the cost of a uniform without general utility that is required to be worn in performing the donated services
4) all the cost of meals while away from home
1) out-of-pocket transportation expenses
2) the cost of lodging while away from home
3) the cost of a uniform without general utility that is required to be worn in performing the donated services
The taxpayer may only deduct the unreimbursed expenses incurred incident to rendering the services. These items include out-of-pocket transportation expenses, the cost of lodging, 50% of the cost of meals while away from home, and the cost of a uniform without general utility that is required to be worn in performing the donated services.
Larry contributes a painting to a local museum for display. His AGI is $40,000. Larry paid $15,000 for the painting in 1990, but its market value at the date of the contribution is $22,000. If Larry makes the election to reduce the contribution by certain gains, what will be his deductible contribution for this year?
Choose the best answer.
1) $12,000
2) $15,000
3) $20,000
4) $22,000
2) $15,000
If a taxpayer elects to reduce the value of a contribution of capital gain property, the deduction is equal to the property’s FMV minus the amount of gain that would be recognized if the property were sold at its FMV on the date of the contribution.
Which of the following qualify as a contribution of property even though it is a transfer of partial interest? (Select all that are true.)
1) The contribution of certain remainder interests to a trust
2) The transfer of a remainder interest in a personal residence or a farm
3) Contribution of an undivided interest in property
4) Contribution of use of a vacation home for two weeks
1) The contribution of certain remainder interests to a trust
2) The transfer of a remainder interest in a personal residence or a farm
3) Contribution of an undivided interest in property
Certain transfers of partial interests in property do qualify as deductible: the contribution of certain remainder interests to a trust; the transfer of a remainder interest in a personal residence or a farm; a contribution of an undivided interest in property; and a gift of a partial interest if transferred in trust.
James Gordon has an AGI of $150,000. He donated some equities to Boston University. The securities were valued at $94,000 and were purchased ten months ago. His basis in this stock was $80,000. What is James’ maximum allowable charitable contribution for the current year and how much will be carried over to next year? 1) MAXIMUM CURRENT YEAR DEDUCTION 2) CARRIED OVER TO NEXT YEAR
1) 1) $75,000; 2) $5,000
2) 1) $75,000; 2) $19,000
3) 1) $80,000; 2) $ 0
4) 1) $80,000; 2) $14,000
1) 1) $75,000; 2) $5,000
As long as he donates the short-term gain stock (which will be ordinary income property) to a 50% organization; he will be allowed to deduct up to 50% of his AGI. The valuation of ordinary income property is the lesser of FMV or basis; his basis is $80,000 and will represent the valuation of the gift, since that is less than the FMV of $94,000. Therefore $75,000 (50% of AGI) will be allowable in the current year, with $5,000 being carried over.
Susan Netter purchased some undeveloped land several years ago at a cost of $84,000. She recently had this land appraised, and the appraiser reported a valuation of $90,000. Susan has now decided to donate this property to her friend’s employer, Children’s Hospital. Susan’s anticipated AGI this year will be $160,000. Which of the following statement(s) is(are) true?
I) The maximum amount deductible in the current year is $80,000.
II) If Susan maintains her AGI amount over the next five years; she will be able to deduct the total appraised
value of $90,000 over the five-year time span.
III) The IRS will classify the property as non-use related tangible property.
I only
II only
I and II only
I, II and III
I and II only
Real estate with a long-term holding period is considered to be long-term capital gain property, even if the hospital has no use for the land and decides to sell it to raise cash. Statement I is true because Susan could elect the basis election, thereby allowing the contribution to be as high as 50% of her AGI in the current year. Statement II is true because if she did not opt for the basis election, she would be allowed the gift valuation to be the FMV of 90,000. However, in that situation she would be limited to an overall limit of 30% of AGI, since the land was donated to a 50% organization. In the current year she would be limited to 48,000 [160,000 x .30], but she would have a carryover of 42,000. This could be used the following year; certainly over the next 5 years.
Bob owns a rare coin worth $1,800. He purchased the coin 10 years ago for $450. If Bob decides to donate the coin to the local university, which of the following is true?
1) He will receive a deduction of $450 because the coin is considered to be a collectible.
2) He will receive a deduction of $1,800 because the coin is capital gain property.
3) He will receive a deduction of $450 because the property is non-use-related.
4) He will receive a deduction of $1,800 because the coin was held long-term.
3) He will receive a deduction of $450 because the property is non-use-related.
Had he donated the rare coin to the Smithsonian Institute, he would have been a deduction based on the FMV of $1,800. However, in this case, the coin will be considered non-use related and be limited to the basis as the valuation.
Mary is single and owns $40,000 of stock she originally purchased 10 years ago for $14,000. Her adjusted gross income is $50,000. If Mary donates the stock to her church, which of the following is the maximum amount that can be deducted as a charitable contribution on her federal tax return this year?
1) $14,000
2) $15,000
3) $25,000
4) $40,000
2) $15,000
The Maximum valuation would be FMV and since it went to a 50% Organization the current year deduction would be limited to 30% of AGI. $50,000 × .30 = $15,000.
Susan, a deceased taxpayer, had given two securities to her church just before she died. Security A was a long-term holding, had a cost basis of $40,000 and a FMV of $70,000. Security B was also a long-term holding, had a basis of $20,000 and a FMV of $80,000. Her adjusted gross income (AGI) as calculated on her final tax return, was $130,000. How much is her maximum deduction on her final tax return?
1) $45,000
2) $60,000
3) $65,000
4) $64,000
