[The following information applies to the questions displayed below.] Coattail C
ID: 2333727 • Letter: #
Question
[The following information applies to the questions displayed below.]
Coattail Corporation (CC) manufactures and sells women’s and children’s coats. This year, CC donated 1,000 coats to a qualified public charity. The charity distributed the coats to needy women and children throughout the region. At the time of the contribution, the fair market value of each coat was $80. Determine the amount of CC’s charitable contribution (the taxable income limitation does not apply) for the coats assuming the following:
a. CC’s adjusted basis in each coat was $30.
b. CC’s adjusted basis in each coat was $10.
Explanation / Answer
The firm is eligible for deduction towards charitable contributions.
a. CC’s adjusted basis in each coat was $30.
The number of coats donated = 1,000
The value of each coat = 80
Basis = 1000 * 30 = 30,000
Appreciation = (1,000 * 80) - (1,000 * 30) = 50,000
Deduction will be 50% of appreciation plus basis but not to exceed twice the basis
50,000 * 50% + 30,000 = 55,000 which is less than twice the basis.
Therefore, CC's charitable contribution = 55,000
b. CC’s adjusted basis in each coat was $10.
The number of coats donated = 1,000
The value of each coat = 80
Basis = 1000 * 10 = 10,000
Appreciation = (1,000 * 80) - (1,000 * 10) = 70,000
Deduction will be 50% of appreciation plus basis but not to exceed twice the basis
70,000 * 50% + 10,000 = 45,000 which is greater than twice the basis.
Therefore, CC's charitable contribution = 20,000
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