ExpertHard1 markMultiple Choice
CPA · Question 03 · Area 1: Individual Tax
In Year 1, a taxpayer donates a piece of artwork to a public charity (50% limit organization). The artwork has a fair market value (FMV) of $100,000 and an adjusted basis of $20,000. The taxpayer has held the artwork for 5 years. The charity uses the artwork for its exempt purpose (related use). The taxpayer's AGI is $200,000. What is the maximum charitable contribution deduction the taxpayer can claim in Year 1?
In Year 1, a taxpayer donates a piece of artwork to a public charity (50% limit organization). The artwork has a fair market value (FMV) of $100,000 and an adjusted basis of $20,000. The taxpayer has held the artwork for 5 years. The charity uses the artwork for its exempt purpose (related use). The taxpayer's AGI is $200,000. What is the maximum charitable contribution deduction the taxpayer can claim in Year 1?
Answer options:
A.
$20,000
B.
$60,000
C.
$100,000
D.
$50,000
How to approach this question
1. Determine property type: Long-term capital gain property (held > 1 year).<br/>2. Determine valuation: FMV ($100,000) because it is related use.<br/>3. Determine AGI limitation: For LTCG property to 50% org, limit is 30% of AGI.<br/>4. Calculate limit: $200,000 * 30% = $60,000.<br/>5. Compare contribution amount ($100,000) to limit ($60,000). Deduction is lesser.
Full Answer
B.$60,000✓ Correct
B
The artwork is Long-Term Capital Gain property. Since it is 'related use' by the charity, the contribution amount is the FMV ($100,000). However, contributions of appreciated capital gain property to 50% limit organizations are subject to a 30% AGI limitation. <br/>30% of $200,000 AGI = $60,000. <br/>The taxpayer deducts $60,000 in Year 1 and carries forward the remaining $40,000.
Common mistakes
Applying the 50% limit instead of the 30% limit, or using basis instead of FMV for related-use tangible personal property.
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