ExpertHard1 markMultiple Choice
CPA · Question 06 · Area I: Individual Compliance and Planning
A taxpayer with an AGI of $200,000 wants to make a charitable contribution to a public charity. They hold two assets: <br/>1. Stock A: FMV $50,000, Basis $10,000, held for 5 years.<br/>2. Stock B: FMV $50,000, Basis $60,000, held for 5 years.<br/>Which strategy results in the greatest overall tax benefit?
A taxpayer with an AGI of $200,000 wants to make a charitable contribution to a public charity. They hold two assets: <br/>1. Stock A: FMV $50,000, Basis $10,000, held for 5 years.<br/>2. Stock B: FMV $50,000, Basis $60,000, held for 5 years.<br/>Which strategy results in the greatest overall tax benefit?
Answer options:
A.
Donate Stock B directly to the charity.
B.
Sell Stock A and donate the cash proceeds.
C.
Donate Stock A directly and sell Stock B, then donate the proceeds.
D.
Donate both Stock A and Stock B directly.
How to approach this question
Analyze the tax attributes of the assets. Appreciated LTCG property (Stock A) should be donated directly to avoid tax on gain and get FMV deduction. Loss property (Stock B) should be sold to recognize the loss, then donate cash.
Full Answer
C.Donate Stock A directly and sell Stock B, then donate the proceeds.✓ Correct
C
IRC §170 planning: For Stock A (appreciated), donating directly allows a deduction for FMV ($50k) and avoids tax on the $40k gain. For Stock B (loss), donating directly gives a deduction for FMV ($50k) but the $10k loss is wasted. Selling Stock B first allows the taxpayer to recognize the $10k capital loss, then donating the $50k cash gives the same charitable deduction. Option C maximizes benefits.
Common mistakes
Thinking donating loss property allows the taxpayer to claim the loss.
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