Question

Simone donated a landscape painting (tangible capital gain property) to a library, a public charity. She purchased the painting five years ago for $50,000, and on the date of the gift, it had a fair market value of $200,000. What is her maximum charitable contribution deduction for the year if her AGI is $300,000 (before considering the itemized deduction phase-out)?

Answer 1

Simone's maximum charitable contribution deduction for the year, considering the tangible capital gain property donation, is $150,000.

Step-by-step explanation:

Simone's charitable contribution deduction is calculated based on the fair market value (FMV) of the donated property. In this case, the landscape painting's FMV is $200,000. However, the deduction for tangible capital gain property is limited to 30% of the donor's adjusted gross income (AGI). Given Simone's AGI of $300,000, her maximum deduction is $300,000 * 30% = $90,000.

Additionally, when the donated property has appreciated in value, the donor's deduction is subject to a 50% limitation. This means that the deduction cannot exceed 50% of the donor's AGI. In Simone's case, this 50% limitation is $300,000 * 50% = $150,000. Since this amount is higher than the 30% limitation, her final maximum charitable contribution deduction for the year is $150,000.

It's essential to note that the IRS sets these limitations to ensure a fair balance between encouraging charitable giving and preventing abuse of the tax system. Donors like Simone can still benefit from their generosity, but there are reasonable limits to the deductions allowed based on their income and the nature of the donated property.