Chapter 7(cont) Charitable Contributions

1. Chapter 7(cont) Charitable Contributions • Limited to 50% of AGI • Deduction taken in year of contribution, regardless of taxpayer’s method of accounting • Must be made to a qualified organization • Contributions to a needy individual is not deductible

2. Qualifying organization • Public Charity • church, educational institution, hospitals, government unit, private operating foundations, government sponsored organizations to administer university properties and etc. • Private non-operating foundation - does not receive funding from general public

3. Types of contribution • Cash received • Noncash property • value of property depends on type of property donated and qualifying organization in which the property is donated • Property donated that is smaller than the donor’s entire interest is not considered as charitable contributions

4. Type of property • Capital Gain property • holding period > 1 year • Amount of donation is its FMV • exception 1 - private nonoperating foundation, FMV is reduced by capital gain that would be recognized if sold • exception 2 - unrelated use property - contributed to public charity but not for the use of charity purpose - FMV is reduced by capital gain (immediate sale is considered as unrelated use)

5. Ordinary income property • Holding period < 1 year • Property that would result in the recognition of income taxed at ordinary income rates if the property were sold. Includes inventory , works of art and capital held < 1yr • Exception 1 - corporation donating inventory for the ill, needy and infants • Exception 2 - donation of scientific equipment to college/university for research by manufacturer or computer software to elementary/secondary school (subject to limitation) • Exception 1 & 2 - amount = FMV = 0.5*(gain recognized) limited to twice of adjusted basis of property

6. Services contributed • Only unreimbursed expenses of the following are deductible • Transportation ($0.14 a mile) • Meals (50%) and Lodging • Uniform • Opportunity costs for services contributed is not deductible

7. Limitation amount • Max - 50% of AGI • Excess is carry forward for the subsequent 5 years • Capital gain property contributed to public charity is limited to 30% of AGI • Ordinary and cash property contributed to private nonoperating foundation is also limited to 30% of AGI • Contributions of capital gain property to private nonoperating foundation are limited to the lesser of 20% of taxpayer’s AGI or 30% of taxpayer’s AGI reduced by capital gain contributed to public charity • Contributions to athletics events in return for the right to purchase tickets (80% limitation) • Apply 50% limitation contributions first and then the 30% limitation • Carryover amounts subject to the same % limitations. Deductions for current year is applied first.

8. Miscellaneous items • Accrual method corporate taxpayer can deduct a pledge made if the contribution is made on 15th day of 3rd month following the close of the year • Corporate charitable deductions are limited to 10% of taxable income. Tax-planning • May be beneficial to take election to reduce contribution amount to adjusted basis in order to deduct up to 50% of AGI (lose carryforward) • Decision to sell and donate - for property that has decreased in value