Noncash contribution FMV higher than Basis

[DGEmbry]

Hi,

I got a noncash contribution with FMV of $84K , an adjusted basis of $3K and $19K depreciation recapture per sec. 1245., all recognize in the same tax year 2022.

Lacerte calculate the charitable contribution deduction as: full FMV x 50% of AGI with the balance carried forward.  I was expecting to be allowed only to the maximum original cost basis of $22K.

I would welcome educated comments.

Thank you

Diane

[TaxGuyBill]

Your result in Lacerte is not correct, but neither was your expectation.

Look at Publication 526, under the section that discusses items that have increased in value.  Your first determination should be if one of the "exceptions" apply (see link below, and pay particular attention to #5).

https://www.irs.gov/publications/p526#en_US_2022_publink1000229761

[DGEmbry]

HI TaxGuyBill

I find most of my answer in Pub 526. under Giving Property that has increased in value. I see that I need to reduce the Value to the Basis, now adjusted basis of $3K. after reducing it for depreciation amount taken and the gain that would have resulted had it been sold. The exception #5 does not apply in this case.

Thank you for answer

[TaxGuyBill · Accepted solution]

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@DGEmbry wrote:

The exception #5 does not apply in this case.

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I've never dealt with this, but if I'm reading things correctly:

If the exceptions don't apply, that section says that the deduction for Capital Gain Property is the FMV (in your case, $84,000).

However, it is partly Ordinary Income Property (because of the depreciation) and partly Capital Gain Property.  So the $19,000 (that would have been ordinary income due to the depreciation) lowers that deduction.  So the actual deduction would be $65,000 (and be sure you are not actually reporting the $19,000 as a recognized gain).

[DGEmbry]

Thank you for your input TaxGuyBill.

This might be the way to go.