Question

In 2018, Gray Corporation, a calendar year C corporation, has a $75,000 charitable contribution carryover from a gift made in 2013. Gray is contemplating a gift of land to a qualified charity in either 2018 or 2019. Gray purchased the land as an investment five years ago for $100,000 (current fair market value is $250,000). Before considering any charitable deduction, Gray projects taxable income of $1,000,000 for 2018 and $1,200,000 for 2019.

Should Gray make the gift of the land to charity in 2018 or in 2019?

If an amount is zero, enter "0".

a. If Gray makes the gift of the land to charity in 2018:
The amount of the deduction would be $ and the corporation is able to use $ of the $75,000 carryover. Therefore, Gray has a $ carryover to 2019, of which $ would be used in 2019, leaving
$ to be carried over to 2020.

b. If Gray waits and makes the gift of the land to charity in 2019:
The corporation would have $ carryover from 2013 and $ carryover from 2018. In 2019, the amount of the deduction would be $ and the excess of $ would carryover to 2020.

c. Therefore, Gray should make the gift of the land to charity in ????.

Answer 1

Gray Corporation should defer the gift of the land until 2019.

This would allow Gray to fully deduct in 2018 the carryover contribution amount of $75,000.

If, instead, Gray gifted the land in 2018, the corporation would lose any otherwise allowable deduction as to the $75,000 carryover amount. This occurs because current year gifts are applied against the taxable income limitation before application of any carryover amounts. Thus, the taxable income limitation for 2018 would be completely exhausted by the gift of land in 2018. Since 2018 represents the fifth and last year of the carryover period, a gift of the land in 2018 precludes any deduction for the $75,000. A gift of appreciated land held for more than one year as an investment results in a charitable deduction equal to the land's fair market value (subject to the taxable income limitation).

Assuming a gift of the land in 2019:
2018 taxable income limitation: 10% × $1 million = $100,000.
2018 charitable contribution deduction: $75,000 (carryover from 2013 gift).
2019 taxable income limitation: 10% × 1.2 million = $120,000.
2019 charitable contribution deduction: $120,000 (gift of land; excess contribution of $130,000 is
carried forward for up to 5 years).

Assuming a gift of the land in 2018
2018 taxable income limitation: 10% × $1 million = $100,000.
2018 charitable contribution deduction: $100,000 (gift of land; excess contribution of $150,000 is
carried forward for up to 5 years).

Carryover from 2013 gift ($75,000) disappears, as 2018 is
the last year of the carryover period.

a. If Gray makes the gift of the land to charity in 2018:

The amount of the deduction would be $100,000 and the corporation is able to use $0 of the $75,000 carryover. Therefore, Gray has a $150,000 carryover to 2019, of which $120,000 would be used in 2019, leaving $30,000 to be carried over to 2020.

b. If Gray waits and makes the gift of the land to charity in 2019:

The corporation would have $0 carryover from 2013 and $0 carryover from 2018. In 2019, the amount of the deduction would be $120,000 and the excess of $130,000 would carryover to 2020.

c. Therefore, Gray should make the gift of the land to charity in 2019.