Another question about the donation of appreciated property (mainly stock) to charity. A little more detailed information for anybody interested...additional information on charitable contributions...Let's walk through some of the basics concerning charitable contributions ofstock or other property.Contributions of ordinary income property: Property is ordinary incomeproperty if its sale at fair market value (FMV) on the date it wascontributed would have resulted in ordinary income or in short-term capitalgain. Examples of ordinary income property are inventory, works of artcreated by the donor, manuscripts prepared by the donor, and capital assets(such as stock) held one year or less.The amount of the deduction for the contribution of ordinary income propertyis its FMV less the amount that would be ordinary income or short-termcapital gain if you sold the property for its fair market value. Generallythis rule limits the deduction to your basis (or cost, for tax purposes) inthe property.Example: You donate stock that you held for 5 months to your church. The FMVof the stock on the day you donate it is $1,000, but you paid only $800 whenyou originally purchased it (your basis). Because the $200 of appreciationwould be a short-term capital gain if you sold the stock, your deduction islimited to $800 (FMV less the appreciation). However, there is an exception-- you do NOT need to reduce your charitable contribution if you include theordinary income in your gross income in the same year as the contribution. As you can see, the result in the example is generally the same as if thedonor sold the stock for the FMV and contributed the proceeds. However, ataxpayer who, in the contribution year, has medical expenses of 7.5% of hisadjusted gross income (AGI), or has miscellaneous itemized deductions inexcess of 2% of AGI, or has other deductions subject to an AGI based floorwould be better off contributing the property instead of selling it andcontributing the proceeds, since the gain on a sale would increase his AGIand thus decrease his medical (or other) deductions. In order to avoid thisproblem, try to postpone the stock contribution until the stock is held formore than one year in order to increase the contribution deduction from theproperty's basis to its FMV.Contributions of Capital Gain Property: Property is capital gain property ifits sale at FMV on the date of the contribution would have resulted inlong-term capital gain. Capital gain property (capital assets) includes mostitems of property that you own and use for personal purposes or investment.Examples of capital assets are stocks, bonds, jewelry, coin or stampcollections, and cars or furniture used for personal purposes. Capital assetsalso include certain real property and depreciable property used in yourtrade or business and, generally, held more than one year. (Although you mayhave to treat this property as part ordinary income property and part capitalgain property due to depreciation recapture.)In the case of qualified appreciated stock, you can claim the FMV deductionup to 50% of gross income. Let's not discuss tangible personal property atthis time, which has other special rules. Let's focus only on qualifiedappreciated stock (QAS). QAS means stock of any corporation for which, on thedate of the contribution, market price quotes are readily available on anestablished securities market, and that has been held for more than one year.In addition, shares of open-end mutual fund stock that the mutual fund mustredeem at net asset value upon an investor's demand are also QAS where thenet asset value of the shares is quoted on a daily basis in a newspaper ofgeneral circulation throughout the U.S. There are some exceptions as to what QAS does not include, but thoseexceptions will probably not apply to many of us. So be charitable, but be tax wise about it.
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