Question

Donna donates stock in Chipper Corporation to the American Red Cross on September 10, 2019. She purchased the stock for $23,450 on December 28, 2018, and it had a fair market value of $33,500 when she made the donation.

a. What is Donna’s charitable contribution deduction?
The stock is treated as   property and Donna's charitable contribution deduction is $ for tax purposes.

b. Assume instead that the stock had a fair market value of $20,100 (rather than $33,500) when it was donated to the American Red Cross. What is Donna’s charitable contribution deduction?
$

Answer 1

Purchase date of stock by Donna - 12/28/2018

Purchase price of the stock by Donna - $23,450

Requirement A:-

With respect to the Charitable contribution deduction as set by IRS, if the stock is held for less than a year, the maximum allowed deduction is the fair market value of the property on the date of donation less any amount that would be recorded as ordinary income or short term capital gain if you sold the property at its fair market value.

As such , Donna's charitable contribution deduction is $23,450 which is calculated by Fair market value - Ordinary income that would have been recoginzed as ordinary income if sold($33,500 fair value - $10,050 income if it was sold)

The $10,050 income if it was sold is calculated by reducing the cost of the stock from its fair value ($33,500 - $23,450)

Requirement B:-

If the fair market value of the stock is $20,100, the deduction would be limited to the Fair Market Value of $20,100 because there would not be any income that is recognized on the sale as fair market value is less than the purchase price for the stock. As such, Donna's charitable contribution deuduction in this case would be $20,100