Final answer:
The incorrect statement about donations of capital gain property is B, which claims taxpayers must include the appreciation of the asset in gross income. This is not the case; instead, donors can deduct the fair market value and do not have to report the appreciation as income.
Step-by-step explanation:
Regarding the incorrect statement about donations of capital gain property, the statement that is not correct is B. The taxpayer must include the appreciation of the asset in gross income. When a taxpayer donates capital gain property, they generally do not have to report the appreciation as part of their gross income. Instead, they are allowed to deduct the current fair market value of the property if it has been held for more than one year, making it a long-term capital asset.
To qualify as capital gain property for the purposes of a charitable contribution:
- The asset must have been owned by the taxpayer for more than one year, making it a long-term capital asset.
- The asset must have appreciated in value.
- The taxpayer is usually allowed to deduct the fair market value of the property as a charitable contribution.
This tax treatment encourages donors to contribute appreciated property to charities, as they receive a tax deduction based on the property's value without having to recognize the capital gain that would have occurred had they sold the asset instead.