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In: Accounting

The Millicent Trust reports 2018 gross rent income of $200,000, expenses attributable to the rents of...

The Millicent Trust reports 2018 gross rent income of $200,000, expenses attributable to the rents of $110,200 and tax-exempt interest from state bonds of $10,000. Under the trust agreement, the trustee is to pay 15% of the annual trust accounting income to the Salvation Army, a qualifying charitable organization. If required, round any division to two decimal places. Round your final answer to the nearest dollar. The charitable contribution deduction allowed for 2018 is ?

Expert Solution

Given, Millicent Trust reports 2018 gross rent income of $200,000.

Rent expenses - $110,200

Tax Exempt Interest from State Bonds of $10,000

Trustee pays 15% of Annual Trust Accounting Income to Salvation Army. , a qualifying charitable Organisation.

According to IRS Rules, to be eligible for Charitable contributions deductions following rules has to be fulfilled.

1) The giver should be a corporation, community chest, trust or organisation created under the laws of uhnited states, veternal organisations, domestic fraternal societies, non profit companies.

2) The receiver should be a qualified organisation such as churches, temples, mosques, federal , state and local governments, Non profit schools and hospitals, Salvation Army, american Red Cross, CARE, Goodwill industries, veteran Groups etc.

The limits for Charitable contribution deductions is as follows.

1) 20% of AGI for Appreciated capital Gains

2) 305 of AGI for NOn cash Assets.

3) 60% of AGI for Cash Contributions.

In the given case , the Millicent is contributing 15% of AGI in cash form. 15% of AGI is under the limits of 60% of AGI.

So, Milicent is eligible to deduct the whole 15% of charitable contributins which as follows.

Net Rent Income (AGI) = $200,000 - $110,200 = $89,800.

Interset from bond is not considered for AGI as it is tax exempt.

Charitable Contribution 15% of AGI = $89,800 * 15% = $13,470.

So, total of $13,470 which is 15% of AGI is allowed for charitable deduction.

ekkarill92 answered 2 years ago

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