S- Corp donation of Land

[jlew1229]

I am hoping someone can help.. 

I have an S-corp client that donated 3 parcels of land to a 501 (c) (3 ) organization .  I am not sure exactly how to do this in Lacerte.   3 shareholders, 3 parcels of land .    My example below is using the numbers from one of the pieces of land.   

I have read that the charitable contribution will flow thru on the K-1 as a separately stated deduction.  There is a basis limitation, rest will carryover.   

The land has been appraised at about $169, 000 each.    The basis of the land on the books is approximately $80,000.00 each.   (Using just one piece for an example. )    $80,000 will pass thru to the shareholder on the K-1 as a donation, but limited by basis, rest will carryover for future years.    

The appreciation in the property , $89,000.00  (169,000 - $80,000) will pass through to the shareholders and will be available to be claimed on the personal return.    The appreciation of the contributed property does not reduce basis.  

I hope what I am saying is correct so far.  

If it is, I am unsure how to enter this correctly into Lacerte.    I need to get the land off the books.  It is not on the depreciation schedule, it is in inventory.  The S-Corp is a builder and the Land & improvements are in inventory until a house sells.   In this case no house , no sale.  

Is the $89,000 the separately stated deduction?  Does this go on screen 25?     If so, how do I show the portion of the donation that is in inventory?   Is screen 20 where I put the basis part of the donation?    

I am really hoping someone can help.      Many Many thanks ... 

[sjrcpa]

The charitable contribution deduction for a noncash contribution is limited to basis where the donated item would generate ordinary income if sold, i.e inventory.

[jlew1229]

yes, The deduction is based on the FMV of the contribution, the adjusted basis portion of the contribution is limited to the shareholder basis, and the appreciated difference will pass to them to use on their personal return     I am not sure how to put the contribution into Lacerte.   I am guessing in 2 places? .   One place for the basis limitation amount of adjusted basis of $80,000 and a second place so they can take the appreciated difference of $ $89,000 on their personal return.  (169,000 FMV- 80,000 Basis).   Does anyone know what screens in Lacerte I would enter this data?   

Ruling 2008-16 says the shareholder's basis is not reduced by the appreciation of the contributed capital.   The shareholder is able to take it on their personal return.   

Many thanks to the help.   Hopefully someone knows what screens to put these entries into?  

[sjrcpa]

If the land is inventory with a basis of $80,000, the charitable contribution is $80,000.

The FMV is not deductible.

[jlew1229]

I found an article in the CPA Journal that states the shareholders can take the appreciated value difference on their personal tax return.   Since the charitable donation has a related use to the charitable organization, FMV applies.   (land is being donated to a housing authority to build low income housing.) Am I not understanding the article correctly?            

and does the $80,000 portion of the contribution go on screen 25?  

[qbteachmt]

Did you read Pub 526:

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

"If you contribute inventory (property you sell in the course of your business), the amount you can deduct is the smaller of its fair market value on the day you contributed it or its basis. The basis of contributed inventory is any cost incurred for the inventory in an earlier year that you would otherwise include in your opening inventory for the year of the contribution. You must remove the amount of your charitable contribution deduction from your opening inventory. It isn't part of the cost of goods sold.

If the cost of donated inventory isn't included in your opening inventory, the inventory's basis is zero and you can't claim a charitable contribution deduction. Treat the inventory's cost as you would ordinarily treat it under your method of accounting. For example, include the purchase price of inventory bought and donated in the same year in the cost of goods sold for that year."

[jlew1229]

yeah, I have spent so much time reading about this my head is spinning.   been in pub 544 too... 

 I really appreciate all the help you guys have been giving me. 

So if I can't take the FMV and I can only take the 80K of inventory.   How do I reflect this on the 1120S.  

I need to take it out of inventory, which will affect COGS, but need to also show it as a Charitable contribution?  It says below you must remove the amount of your charitable contribution form your opening inventory.   So I adjust my opening inventory down by $80,000 and then list the $80,000 on both screen 20 and screen 25?   Subject to which limitation?   50%?? 

Just wondering.  - what would capital gain property be when they are referring to Charitable contributions?    If the land only was sold it would be subject to a LTCG, then FMV could be used for the contribution?  Just unclear why this argument fails?   and I know my client will not be happy so I want to make sure I can explain correctly.       

From the pub 526 - Capital assets include most items of property you own and use for personal purposes or investment. Examples of capital assets are stocks, bonds, jewelry, coin or stamp collections, and cars or furniture used for personal purposes.
For purposes of figuring your charitable contribution, capital assets also include certain real property and depreciable property used in your trade or business and, generally, held more
than 1 year. You may, however, have to treat this property as partly ordinary income property
and partly capital gain property. See Property used in a trade or business under Ordinary Income Property, earlier.  (Pub 526 -Ordinary Income Property Property is ordinary income property if you would have recognized ordinary income or short-term capital gain had you sold it at fair market value on the date it was contributed.) Land is not depreciated so it would not be subject to Ordinary income for that if sold separately.  It has been held onto for more than 1 year, so no short term gain.   

again.  Many thanks.   

[sjrcpa]

You said it was inventory.

[jlew1229]

Its a large parcel of land the S-Corp purchased.   subdivided into lots.   3 lots were donated to the Charitable organization the rest of the lots are having houses built on them for the S-Corp to sell.   The land is sitting on the balance sheet and gets allocated as the houses are built.   

[sjrcpa]

Sounds like inventory/ordinary income property. The S Corp is in the real estate business. When it sells those houses it will receive ordinary income.

[sjrcpa]

Also, is it really a charitable contribution?

Or are they required to "donate" 3 lots to the housing authority for low income housing in order be able to build market value housing on the rest?

[jlew1229]

a very good question I did not ask.  But will be asking.   Will let you know shortly.    

[qbteachmt]

I think you are confused for the word use. This entity is not Using the property in the course of business. Just like I might sell teddy bears, and I don't have a Teddy Bear in use as part of the operations.

In Use real estate would be the parking lot adjoining the company offices where they stored the construction trailers. They decide to sell the trailers and only be a General Contractor, so the lot was in use and now it is not in use for purposes of operations.

On Hand is not the same as in use.

[jlew1229]

There were no requirements to donate any lots.  There was a requirement to build 5 affordable housing homes.  With the high price of materials, the client decided to donate them to the  Housing Authority and let them build the homes.

[sjrcpa]

The charitable contribution is limited to cost basis.