Donation question

[JG EA]

I'm reading about capital assets using FMV for donations. However the rest of what I'm reading isn't computing.

If a client donates 100 knives he bought in 2009 for $5 each and they are auctioned off (for charitable org) for $10 each because they are worth that much now, can he take FMV as the donation amount.?

[Jiggers]

I'm reading about capital assets using FMV for donations. However the rest of what I'm reading isn't computing.

If a client donates 100 knives he bought in 2009 for $5 each and they are auctioned off (for charitable org) for $10 each because they are worth that much now, can he take FMV as the donation amount.?

I say no. He needs to get the FMV in a letter from the charitable organization BEFORE they are auctioned.

Suppose they are not auditioned off for two or three years.

[ChEAr$]

cost or FMV at time of contribution.

[taxea]

I'm reading about capital assets using FMV for donations. However the rest of what I'm reading isn't computing.

If a client donates 100 knives he bought in 2009 for $5 each and they are auctioned off (for charitable org) for $10 each because they are worth that much now, can he take FMV as the donation amount.?

I say no also. He can't claim a donation for more than what his basis is.

[JG EA]

I worded it incorrectly. The person taking the donation knew the value and what the knives would bring and wrote it down on the bottom of a letter from the organization.

Three no's, but what about donating appreciated capital gain property?

Pub 526.

Property is capital gain property if its sale at fair market value on the date of the contribution would have resulted in long-term capital gain. Capital gain property includes capital assets held more than 1 year.

I recently had a client that sold a gun for way more than he bought it and I had no problem seeing it as a capital asset. In this situation I was not sure about the knives as capital assets.

[Gary2]

In this situation I was not sure about the knives as capital assets.

What else could they be? Personal property is a capital asset unless you have some justification for treating it otherwise.

The better question, in my mind, is whether the amount received at auction is a good measure of FMV. While auctions are usually considered reliable indicators, is it possible that in this case the auction value would be considered inflated because it was directly for a charity, at a price level where such inflation is both likely and a significant percentage?

[JG EA]

What else could they be? Personal property is a capital asset unless you have some justification for treating it otherwise.

The better question, in my mind, is whether the amount received at auction is a good measure of FMV. While auctions are usually considered reliable indicators, is it possible that in this case the auction value would be considered inflated because it was directly for a charity, at a price level where such inflation is both likely and a significant percentage?

Thanks for replying. I am asking a basic question that I should have a clue about. IF it is FMV can you take it if the basis is less? Does the quote I had work in such a case?

And yes, I will reconsidered the better question about FMV. Willing buyer - a little different in a charitable auction.

[taxea]

I wouldn't take more than the purchase price unless the TP can verify in writing the FMV of the donation. How much of a FMV did the non-profit give? Perhaps an online search for a like item might help prove the value.

[Jiggers]

I worded it incorrectly. The person taking the donation knew the value and what the knives would bring and wrote it down on the bottom of a letter from the organization.

How can someone know what an auction will bring before the auction unless the price was fixed and it really wasn't an auction, but a sale if fixed price items.

[DonPriebe]

Why does someone have 100 knives to donate in the first place? Is he perhaps a dealer in knives or similar property? Could they be inventory? (That would kill the FMV question and limit the deduction to basis.)

[Burke]

Thanks for replying. I am asking a basic question that I should have a clue about. IF it is FMV can you take it if the basis is less? Does the quote I had work in such a case?

See Pub 526, page 11. Generally, FMV of appreciated capital gain property. However, if you choose 50% prop, you may have to reduce by LTG. It's pretty well spelled out and should cover your situation.