Question

Please explain the conditions in which a donation of property to a charity will result in a charitable contribution deduction of fair market value and when it will result in a deduction of the tax basis of the property.

Answer 1

The general conditions when donation of property (non cash)is made to the charity and the contribution can be shown as deductions at fair market value by the tax payers

• The rules says that if capital assets that is donated has appreciated more than the purchase price or basis of the property and is held for more than one year before donating
• If the appreciated business assets in which the value is more than the purchase price or basis of the property and is held for more than one year before donating and if the gain on asset if sold is not treated as ordinary income in normal course of tax liability

The exceptions to this rule is when donation is made our of ordinary income property or capital loss property (when the current market value is less than purchase price) than lower of the following values are taken

• The fair value of property
• The adjusted basis of the property

The general conditions when charitable contribution deduction as of the tax basis of the property by the tax payer

• The rule says when ordinary income property has appreciated in value
• When the capital assets( other than stock) whose value is more than purchase price is donated to private non operating foundations
• If the tangible property if donated to charity and if charity foundation is using it other than the purpose for which it is donated and if the tax payer has knowledge of that
• If the appreciated business assets are held by tax payer more than one year and if the gain on assets can be shown as ordinary income under depreciation recapture rules