Question

Spencer, who itemizes deductions, had adjusted gross income of $60,000 for the current year. The following additional information is available for the year:

Cash Contribution to Church $4,000
Purchase of art object at church bazaar
(with a fair market value of $800 on the date of purchase) 1,200
Donation of used clothing to Salvation Army
(fair value evidenced by receipt received) 600
What is the maximum amount Spencer can claim as a deduction for charitable contributions in the current year?

Answer 1

The maximum amount Spencer can claim as a deduction for charitable contributions in the current year is $5,000.

Step-by-step explanation:

The following are the list of allowable deductions:

Cash Contribution to Church = $4,000

Excess of amount paid for art object at church bazaar over fair market value = $1,200 - $800 = $400

Fair market value used clothing donated to Salvation Army = $600

Total allowable deductions = Cash Contribution to Church + Excess of amount paid for art object at church bazaar over fair market value + Fair market value used clothing donated to Salvation Army = $4,000 + $400 + $600 = $5,000

The decision rule is that the total allowable deduction must be less than the 50% of adjusted gross income ceiling.

50% of adjusted gross income = Adjusted gross income * 50% = $60,000 * 50% = $30,000

Since the total allowable deductions of $5,000 is less than the $30,000 which is 50% of adjusted gross income, the maximum amount Spencer can claim as a deduction for charitable contributions in the current year is $5,000.