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Gifts of appreciated property to charity.

A very popular form of charitable giving today is donating appreciated property to charity. With the rising value of the stock market and real estate, many taxpayers have chosen to share their good fortune with others in this manner. The IRS An abbreviation for the Internal Revenue Service, a federal agency charged with the responsibility of administering and enforcing internal revenue laws.  encourages this form of giving, by allowing taxpayers to deduct the fair market value (FMV FMV - full-motion video ) of the asset donated; if the same asset were sold, it would generate a capital gain.

Charitable Contributions

In general, five different percentage limits apply to charitable deductions, all based on an individual's adjusted gross income (AGI (Artificial General Intelligence) A machine intelligence that resembles that of a human being. Considered impossible by many, most artificial intelligence (AI) research, projects and products deal with specific applications such as industrial robots, playing chess, ).

The first limit is the 50% overall limit. To be currently deductible, charitable gifts taken together may not exceed 50% of a taxpayer's AGI. If donations exceed 50% of AGI in any year, the excess is carried forward as a deduction in future years. To complicate this simple concept, there are percentage limits based on the category of asset contributed as well as the type of charity to which the contribution is made.

Types of Charities

50% charities (also known as Sec. 501 (c) (3) charities). These charities are typically churches, schools, hospitals, governmental units, private operating foundations and other nonprofit agencies organized for charitable, religious, educational, scientific or literary purposes.

30% charities. These charities include veterans' organizations This is a list of veterans' organizations. Australia
  • Returned & Services League of Australia
Canada
  • VETERANSOFCANADA.CA Business Supporting Heroes initiative
, domestic fraternal fraternal /fra·ter·nal/ (frah-ter´n'l)
1. of or pertaining to brothers.

2. of twins; derived from two oocytes.


fra·ter·nal
adj.
1. Of or relating to brothers.
 societies, nonprofit cemeteries and certain nonoperating private foundations.

20% charities. Typically, these charities are family-funded private foundations.

Category of Asset Contributed

Type 1. Cash and non-long-term capital gain property (basically, inventory or capital-gain-type assets held less than one year).

Type 2. Long-term capital gain Long-term capital gain

A profit on the sale of a security or mutual fund share that has been held for more than one year.
 property.

Second-Level Percentage Calculation

50% limit. Type 1 assets to 50% charities.

30% limit. Type 1 assets to 30% charities and type 2 assets to 50% charities.

20% limit. Type 1 assets to 20% charities and type 2 assets to 30% charities.

Because taxpayers can make donations of different asset categories to different types of charitable organizations, these limits need to be ordered:

1. Type 1 assets to 50% organizations.

2. Type 1 assets to 30% organizations.

3. Type 2 assets to 50% charities.

4. Type 1 assets to 20% charities.

5. Type 2 assets to 30% charities.

For California income tax purposes, the rules governing deductibility of appreciated asset donations are different from the Federal rules. When Congress first allowed taxpayers to deduct the FMV of appreciated property, the portion of the deduction associated with the untaxed Adj. 1. untaxed - (of goods or funds) not taxed; "tax-exempt bonds"; "an untaxed expense account"
tax-exempt, tax-free

nontaxable, exempt - (of goods or funds) not subject to taxation; "the funds of nonprofit organizations are nontaxable"; "income exempt
 gain was made subject to the alternative minimum tax (AMT See vPro. ). For Federal purposes, this rather onerous limitation has been eliminated. However, California never conformed to this Federal change; thus, the untaxed gain portion is still subject to California AMT.

Another nonconformity non·con·form·i·ty  
n. pl. non·con·form·i·ties
1.
a. Refusal or failure to conform to accepted standards, conventions, rules, or laws.

b.
 occurs when dealing with appreciated property donated to private foundations. The Service allows a deduction for the FMV of the asset subject to the 20% limit. For California purposes, the deduction is limited to the basis of the asset contributed.

Example: A married couple with AGI of $333,250 is considering donating $100,000 to the Boys and Girls boys and girls

mercurialisannua.
 Club, a 50% charity. The couple's only other itemized deductions are $22,000 in state income taxes, a contribution of $5,000 to a veterans' organization and $2,500 to various local charities. The $100,000 will come from the sale of stock with a zero tax basis. The couple can either contribute the stock to charity or sell it and contribute the cash.

If the stock is contributed rather than sold, the couple's Federal tax liability is reduced by $19,271. The amount of contribution allowed is $102,475, with $5,025 carried over to the following year. The $102,475 contribution is calculated as follows. The overall limit of 50% of AGI is $166,625. However, the contribution to the veterans' organization is limited to 30% of AGI, or $99,975. The gift of appreciated stock to the Boys and Girls Club is also limited to 30% of AGI. Therefore, of the $105,000 given subject to the 30% limit, only $99,975 may be used in the current year. The $2,500 cash can be fully deducted this year. Thus, the current-year deduction is $102,475.

FROM ROBERT T. BURSON, CPA (Computer Press Association, Landing, NJ) An earlier membership organization founded in 1983 that promoted excellence in computer journalism. Its annual awards honored outstanding examples in print, broadcast and electronic media. The CPA disbanded in 2000. , GRICE, LUND & TARKINGTON LLP LLP - Lower Layer Protocol , CPAs, ENCINITAS/ESCONDIDO, CA
COPYRIGHT 1999 American Institute of CPA's
No portion of this article can be reproduced without the express written permission from the copyright holder.
Copyright 1999, Gale Group. All rights reserved. Gale Group is a Thomson Corporation Company.

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Author:Burson, Robert T.
Publication:The Tax Adviser
Geographic Code:1USA
Date:Dec 1, 1999
Words:697
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