Under current tax law, a donor may deduct fair market value for certain non-cash contributions of a capital asset to IRS qualified tax-exempt organizations. This provision in the law has been a great benefit to organizations as well as donors.
For example, assume a taxpayer owns a capital asset such as a tract of unimproved land. The land has a cost basis to the taxpayer of $10,000 but its fair market value is $50,000. If this land has been owned by the taxpayer for more than 12 months, he or she gets a deduction equal to the fair market value when donated to an IRS qualified tax-exempt organization. So the taxpayer gets a $50,000 deduction for an asset costing him or her $10,000 and does not pay any tax on the appreciated amount.
If this sounds too good to be true, that may be the case in the future. There appears to be strong sentiment in Congress to limit the deduction to basis rather than fair market value, all in the name of tax reform. While anything can happen, this change is not anticipated to apply to gifts of securities.
It might be a good tax-planning strategy to donate such assets now rather than later in order to take advantage of the favorable tax laws before they change. In the event the taxpayer cannot deduct the entire donation in a single year, the remaining amount can be carried forward for as long as five years. Note that individuals are limited to deducting no more than 30 percent of their adjusted gross income as capital gain contributions; with a 50 percent limitation to all charitable contributions.
Note that this is only a possibility, it may not come to pass, it may be passed in some other form. With Congress, one can never tell.
Dr. John Stancil (My Bald CPA) is Professor Emeritus of Accounting and Tax at Florida Southern College in Lakeland, FL. He is a CPA, CMA, and CFM and passed all exams on the first attempt. He holds a DBA from the University of Memphis and the MBA from the University of Georgia. He has maintained a CPA practice since 1979 with an emphasis in taxation. His areas of expertise include church and clergy tax issues and the foreign earned income credit. He prepares all types of returns, individual and business.
Dr. Stancil has written for the Polk County Business Journal and has presented a number of papers at academic conferences. He wrote the Instructor’s Manual for the 13th edition of Horngren’s Cost Accounting. He is published in the Global Sustainability as a Business Imperative, Green Issues and Debates, The Encyclopedia of Business in Today’s World, The Palmetto Business Review, The CPA Journal, and in the NATP TaxPro Journal. His paper, “Building Sustainability into the Tax Code” was recognized as the outstanding accounting paper at the annual meeting of the South East InfORMS. He wrote a book entitled “Tax Issues Faced by U. S. Missionary Personnel Abroad ” that will soon be published.
He has recently launched a new endeavor, Church Tax Solutions, which presents online, on demand seminars on various church and clergy tax issues.
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