ExpertMinds LogoExpertMinds
Medium1 markMultiple Choice
Area I: Individual Compliance and PlanningTCPIndividual TaxCharitable Contributions

CPA · Question 03 · Area I: Individual Compliance and Planning

A taxpayer wants to donate stock held for 5 years to a public charity. The stock has an adjusted basis of $20,000 and a fair market value (FMV) of $50,000. The taxpayer's AGI is $100,000. The taxpayer wants to maximize their current year charitable deduction. Which strategy yields the highest deductible amount for the current year, assuming the relevant percentage limitations are 30% of AGI for FMV contributions of capital gain property and 50% of AGI for basis contributions?

Answer options:

A.

Sell the stock and donate the cash proceeds.

B.

Donate the stock directly and deduct FMV subject to the 30% AGI limit.

C.

Donate the stock directly and elect to reduce the deduction to basis to use the 50% AGI limit.

D.

Donate the stock directly; the deduction is limited to basis ($20,000) automatically.

How to approach this question

Compare the deduction amounts: (1) FMV limited to 30% AGI vs (2) Basis limited to 50% AGI. Calculate: 30% of $100k = $30k. Basis = $20k. $30k > $20k.

Full Answer

B.Donate the stock directly and deduct FMV subject to the 30% AGI limit.✓ Correct
B
Under IRC §170, contributions of long-term capital gain property to public charities are deductible at FMV, limited to 30% of AGI ($30,000). The taxpayer could elect to reduce the deduction to basis ($20,000) to use the 50% limit, but $30,000 is greater than $20,000. Selling the stock triggers tax on the $30,000 gain, which is tax-inefficient.

Common mistakes

Assuming the 50% limit always yields a higher result; forgetting that selling triggers tax; confusing ordinary income property rules with capital gain property rules.
02All questions04

Practice the full CPA TCP Practice Exam 5

68 questions · hints · full answers · grading

Sign up freeTake the exam

More questions from this exam

Q01In Year 1, an executive is granted an Incentive Stock Option (ISO) to purchase 1,000 shares of co...MediumQ02A taxpayer has a $500,000 interest-free loan from their employer outstanding for the entire Year ...MediumQ04An individual taxpayer had an AGI of $160,000 in Year 1 and a tax liability of $30,000. In Year 2...MediumQ05A taxpayer invests $50,000 cash for a 20% interest in a partnership. The partnership takes out a ...HardQ06In Year 1, a taxpayer has the following income and losses:<br/>- Salary: $120,000<br/>- Income fr...Hard
View all 68 questions →