Question

Liz had an AGI of $130,000 in 2020. She donated Corporation Stock with a basis of $10,000 to a qualified charitable organization on July 5, 2020.

A. What is the amount of Liz's deduction assuming that she purchased the stock on December 3, 2019, and the stock had a fair market value of $17,000 when she made the donation?

B. Assume the same facts as in part (A) except that Liz purchased the stock on July 1, 2017.

C. Assume the same facts as in part (A) except that the stock had a fair market value of $7,500 rather than $17,000 when Liz donated it to the charity.

Please clearly explain

Answer 1

A Charitable contribution made in form of property has its tax effect based on the type of property donated.

1. If the property is capital gain property, then the charitable contribution amount is equal to its Fair market value on date of contribution.

2. If the property is Ordinary income property, then the charitable contribution amount is equal to the lower of Fair market value or basis of property.

A. The stock was purchased in the last 12 months of contribution, so the property is short term property (ordinary income property).

Deduction for charitable contribution = Lower of Fair market value and basis

= 10,000

B. The stock is a long term asset (capital gain property), because it is purchased prior to 12 months.

Deduction for Charitable contribution = FMV = 17,000

C. The stock is a Ordinary income property and hence the deduction amount will be lower of Fair market value and basis of property.

Deduction for charitable contribution = 7,500

(FMV is taken, as it is lower than basis)