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Appreciated Property Charitable Donation

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    Appreciated Property Charitable Donation

    Client has a building he wants to sell to a church.

    FMV and agreed sales price is $250,000. Can client actually sell the property for $200,000 to the church and show $50,000 as a charitable donation to the church? Perhaps show the sales price on the closing stament as $250,000 and a $50,000 donation on the statement?

    If not, is there a way to structure the sale so this would be possible? The property has appreciated well beyond the $50,000 donation he wants to make.
    You have the right to remain silent. Anything you say will be misquoted, then used against you.

    #2
    Yes, it would qualify for a charitable contribution deduction, but it isn’t quite as simple as taking the difference between FMV and the Sales Price. The Bargain Sale rules of Section 1011(b) kick in where you have to allocate a portion of the basis to the gift part, which means the gain on the sale part is increased accordingly, while the deduction on the gift part is reduced accordingly. I have never done this before so I can’t tell you exactly how to do this. If you would like, I could copy and paste the 8 or so examples on the message board that are from Regulation Section 1.1011-2 that illustrate how all these rules work.

    Comment


      #3
      Well, I might as well post them anyway. I haven't read through all of them as I am involved with something else at the moment, but here they are for all to try and figure out.

      (c) ILLUSTRATIONS. The application of this section may be illustrated by
      the following examples, which are supplemented by other examples in
      paragraph (d) of Section 1.170A-4:

      EXAMPLE 1. In 1970, A, a calendar-year individual taxpayer, sells to
      a church for $4,000 stock held for more than 6 months which has an
      adjusted basis of $4,000 and a fair market value of $10,000. A's
      contribution base for 1970, as defined in section 170(b)(1)(F), is
      $100,000, and during that year he makes no other charitable
      contributions. Thus, A makes a charitable contribution to the church
      of $6,000 ($10,000 value - $4,000 amount realized). Without regard
      to this section, A is allowed a deduction under section 170 of $6,000
      for his charitable contribution to the church, since there is no
      reduction under section 170(e)(1) with respect to the long-term
      capital gain. Accordingly, under paragraph (b) of this section the
      adjusted basis for determining gain on the bargain sale is $1,600
      ($4,000 adjusted basis x $4,000 amount realized/$10,000 value of
      property). A has recognized long-term capital gain of $2,400 ($4,000
      amount realized - $1,600 adjusted basis) on the bargain sale.

      EXAMPLE 2. The facts are the same as in example (1) except that A
      also makes a charitable contribution in 1970 of $50,000 cash to the
      church. By reason of section 170(b)(1)(A), the deduction allowed
      under section 170 for 1970 is $50,000 for the amount of cash
      contributed to the church; however, the $6,000 contribution of
      property is carried over to 1971 under section 170(d). Under
      paragraphs (a)(2) and (b) of this section the adjusted basis for
      determining gain for 1970 on the bargain sale in that year is $1,600
      ($4,000 x $4,000/$10,000). A has a recognized long-term capital gain
      for 1970 of $2,400 ($4,000 - $1,600) on the sale.

      EXAMPLE 3. In 1970, C, a calendar-year individual taxpayer, makes a
      charitable contribution of $50,000 cash to a church. In addition, he
      sells for $4,000 to a private foundation not described in section
      170(b)(1)(E) stock held for more than 6 months which has an adjusted
      basis of $4,000 and a fair market value of $10,000. Thus, C makes a
      charitable contribution of $6,000 of such property to the private
      foundation ($10,000 value - $4,000 amount realized). C's contribution
      base for 1970, as defined in section 170(b)(1)(F), is $100,000, and
      during that year he makes no other charitable contributions. By
      reason of section 170(b)(1)(A), the deduction allowed under section
      170 for 1970 is $50,000 for the amount of cash contributed to the
      church. Under section 170(e)(1)(B)(ii) and paragraphs (a)(1) and
      (c)(2)(i) of Section 1.170A-4, the $6,000 contribution of stock is
      reduced to $4,800 ($6,000 - [50% x ($6,000 value of contributed
      portion of stock - $3,600 adjusted basis)]). However, by reason of
      section 170(b)(1)(B)(ii), applied without regard to section 1011(b),
      no deduction is allowed under section 170 for 1970 or any other year
      for the reduced contribution of $4,800 to the private foundation.
      Accordingly, paragraph (b) of this section does not apply for
      purposes of apportioning the adjusted basis of the stock sold to the
      private foundation, and under section 1.1011-1(e) the recognized gain
      on the bargain sale is $0 ($4,000 amount realized - $4,000 adjusted
      basis).

      EXAMPLE 4. In 1970, B, a calendar-year individual taxpayer, sells to
      a church for $2,000 stock held for not more than 6 months which has
      an adjusted basis of $4,000 and a fair market value of $10,000. B's
      contribution base for 1970, as defined in section 170(b)(1)(F), is
      $20,000 and during such year B makes no other charitable
      contributions. Thus, he makes a charitable contribution to the church
      of $8,000 ($10,000 value - $2,000 amount realized). Under paragraph
      (b) of this section the adjusted basis for determining gain on the
      bargain sale is $800 ($4,000 adjusted basis x $2,000 amount
      realized/$10,000 value of stock). Accordingly, B, has a recognized
      short-term capital gain of $1,200 ($2,000 amount realized - $800
      adjusted basis) on the bargain sale. After applying section 1011(b)
      and paragraphs (a)(1) and (c)(2)(i) of Section 1.170A-4, B is allowed
      a charitable contributions deduction for 1970 of $3,200 ($8,000 value
      of gift - [$8,000 - ($4,000 adjusted basis of property x $8,000 value
      of gift/$10,000 value of property)]).

      EXAMPLE 5. The facts are the same as in Example 4 except that B sells
      the property to the church for $4,000. Thus, B makes a charitable
      contribution to the church of $6,000 ($10,000 value - $4,000 amount
      realized). Under paragraph (b) of this section the adjusted basis for
      determining gain on the bargain sale is $1,600 ($4,000 adjusted basis
      x $4,000 amount realized/$10,000 value of stock). Accordingly, B has
      a recognized short-term capital gain of $2,400 ($4,000 amount
      realized - $1,600 adjusted basis) on the bargain sale. After applying
      section 1011(b) and paragraphs (a)(1) and (c)(2)(i) of Section 1.170A-
      4, B is allowed a charitable contributions deduction for 1970 of
      $2,400 ($6,000 value of gift - [$6,000 - ($4,000 adjusted basis of
      property x $6,000 value of gifts/$10,000 value of property)]).

      EXAMPLE 6. The facts are the same as in Example 4 except that B sells
      the property to the church for $6,000. Thus, B makes a charitable
      contribution to the church of $4,000 ($10,000 value - $6,000 amount
      realized). Under paragraph (b) of this section the adjusted basis for
      determining gain on the bargain sale is $2,400 ($4,000 adjusted basis
      x $6,000 amount realized/$10,000 value of stock). Accordingly, B has
      a recognized short-term capital gain of $3,600 ($6,000 amount
      realized - $2,400 adjusted basis) on the bargain sale. After applying
      section 1011(b) and paragraphs (a)(1) and (c)(2)(i) of Section 1.170A-
      4, B is allowed a charitable contributions deduction for 1970 of
      $1,600 ($4,000 value of gift - [$4,000 - ($4,000 adjusted basis of
      property x $4,000 value of gift/$10,000 value of property]).

      EXAMPLE 7. In 1970, C, a calendar-year individual taxpayer, sells to
      a church for $4,000 tangible personal property used in his business
      for more than 6 months which has an adjusted basis of $4,000 and a
      fair market value of $10,000. Thus, C makes a charitable contribution
      to the church of $6,000 ($10,000 value - $4,000 adjusted basis). C's
      contribution base for 1970, as defined in section 170(b)(1)(F) is
      $100,000 and during such year he makes no other charitable
      contributions. If C had sold the property at its fair market value at
      the time of its contribution, it is assumed that under section 1245
      $4,000 of the gain of $6,000 ($10,000 value - $4,000 adjusted basis)
      would have been treated as ordinary icome. Thus, there would have
      been long-term capital gain of $2,000. It is also assumed that the
      church does not put the property to an unrelated use, as defined in
      paragraph (b)(3) of Section 1.170A-4. Under paragraph (b) of this
      section the adjusted basis for determining gain on the bargain sale
      is $1,600 ($4,000 adjusted basis x $4,000 amount realized/$10,000
      value of property). Accordingly, C has a recognized gain of $2,400
      ($4,000 amount realized - $1,600 adjusted basis) on the bargain sale,
      consisting of ordinary income of $1,600 ($4,000 ordinary income x
      $4,000 amount realized/$10,000 value of property) and of long-term
      capital gain of $800 ($2,000 long-term gain x $4,000 amount
      realized/$10,000 value of property). After applying section 1011(b)
      and paragraphs (a) and (c)(2)(i) of Section 1.170A-4, C is allowed a
      charitable contributions deduction for 1970 of $3,600 ($6,000 gift -
      [$4,000 ordinary income x $6,000 value of gift/$10,000 value of
      property]).

      Comment


        #4
        Thanks so much Bees Knees. This is one of those deals where your client has a friend who did this. But, I can't talk to the friend or his tax preparer to find out just exactly what they are talking about.

        Now I know how to respond to my client.
        You have the right to remain silent. Anything you say will be misquoted, then used against you.

        Comment

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