Question

Maple Corp. owns several pieces of highly valued paintings that are on display in the corporation's headquarters. This year, it donated one of the paintings valued at $100,000 (adjusted basis of $25,000) to a local museum for the museum to display.

a. What is the amount of Maple Corp.'s charitable contribution deduction for the painting (assuming income limitations do not apply)?

b. What would be Maple's deduction if the museum sold the painting one month after it received it from Maple?

Answer 1

Maple Corp. can deduct $100,000 for the charitable contribution of the painting. If the museum sells the painting within a month, the deduction is limited to the painting's adjusted basis of $25,000.

Step-by-step explanation:

The amount of Maple Corp.'s charitable contribution deduction for the donation of the painting, assuming the corporation meets the necessary IRS requirements for deducting charitable contributions and that income limitations do not apply, is the painting's fair market value at the time of the donation. Since the painting is valued at $100,000, Maple Corp. can deduct the full $100,000 as a charitable contribution.

However, if the local museum sells the painting one month after receiving it, the nature of the deduction changes. According to the IRS rules, if Maple Corp. donates a painting to an organization that then sells it within three years, without any use by the organization that aligns with its exempt function, the corporation is limited to deducting the painting's adjusted basis rather than its fair market value. In this case, Maple Corp.'s deduction would be limited to its adjusted basis in the painting, which is $25,000.