Question

Case #1: Tom is an avid collector of sports memorabilia and he has a collection worth $125,000. His cost basis in his collection is $115,000. Tom is a supporter of the American Cancer Society as his wife was afflicted with the disease and passed away 3 years ago. Tom is looking to gift to the American Cancer Society his sports memorabilia collection, and he has asked you the best way to do so for him to earn the largest deduction for tax purposes.

What are the issues he should consider in giving the collection (or value of his collection) to the American Cancer Society? What recommendations do you give Tom regarding getting the value of his collection to the American Cancer Society that will benefit both Tom and the charity?

Answer 1

As per publication 526 on charitable contribution

There are 4 types of deduction allowed to tax payer

1-60% of AGI charity deduction allowed which is totally cash transaction which means person should give charity in cash to first category of 50 % limit charitable organization

2- 50% of AGI for non cash contribution to qualified first category of 50 % limit charitable organization

3- 30% of AGI for capital gain contributed distribution

4- 20% of AGI for Capital gain distribution

so in given case FMV of tom collection = $ 125000

His cost basis in collection is $ 115000

so to attain maximum deduction Tom should sell his collection and get cash and donate in cash which will allowed him 60% of AGI deduction and charitable organization will also get $125000 which can be usable by them for better use

if he give collection of sport memorabilia with out selling it then maximum deduction he can get is 30% of AGI as it will capital gain property

so TOM should sell the collection and give cash to charitable organization as this will be generate $10000 of capital gain which will taxable as long term and maximum benefit of 60% of AGI can be taken by tom and charitable organization will be able to use cash for better purpose then collection of memorabilia which is of no use for american cancer society