Benevolence and Benefits
Benevolence and Benefits
Most people do not give to charity for tax deductions, but would they like to receive the most benefit for their benevolence? Sure. Donating cash is the simplest way to make a tax-deductible donation and should be validated with a receipt. But, this simple way of giving is not available to all tax payers who would like to contribute more than the bare minimum.
Property donations are subject to many complex tax rules and cannot exceed 50% of the tax payers Adjusted Gross Income (AGI) but I shall try and minimize the confusion and maximize your understanding of giving for good and reaping its benefits.
Depending on whether the asset is Long-term or Short-term; Appreciated or depreciated; and what its intended use would be, you can apply the perfect strategy. In return, you may deduct amounts ranging from the Cost to Fair Market Value (FMV) or somewhere in between.
Appreciated Property is property which has higher FMV then what its adjusted cost. Adjusted cost would be the purchase price minus years of depreciation which brings the property down to its salvage value or zero.
Appreciated Short-Term Capital Gain property
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Property held 12 months or less
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E.g. Inventory, stocks and property created by you (art).
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If you intend to sell the property and it has gained significantly you would recognize a taxable gain
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So donate an asset still close to its original cost and you can recognize the deduction limited to its cost.
Appreciated Long-Term Capital Gain
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Property held 12 months or more
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E.g. Clothing, appliances, cars, stocks etc.
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Consider donating this type of property to avoid income tax on the gains.
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If the charitable organization uses the property for related use e.g. furniture for their rooms - the donor may claim the Fair Market Value (FMV) as a deduction.
On the flip side,
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If the property has un-related use to the Charity e.g. art not displayed but, sold by the charity at an auction the donor will have to limit their deduction at the cost.
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Property which has considerable gain should be donated for the optimum deduction. The intended use of the charity would be the determining factor in this case.
If you have any questions and queries about such transactions please feel free to contact us at
(714) 848-9158 and make an appointment.
By,
Sid Siddiqui
