Ramon had AGI of $180,000 in 2014. He contributed stock in Charlton, Inc. (a pub
ID: 2655541 • Letter: R
Question
Ramon had AGI of $180,000 in 2014. He contributed stock in Charlton, Inc. (a publicly traded corporation), to the American Heart Association, a qualified charitable organization. The stock was worth $105,000 on the date it was contributed. Ramon had acquired it as an investment two years ago at a cost of $84,000.
a. Assuming that Ramon carries over any disallowed contribution from 2014 to future years, what is the total amount he can deduct as a charitable contribution?
The stock is considered capital gain property. The general rule limits the deduction for the contribution of such property to_______% of AGI.
Hence, Ramon's total charitable contribution deduction is $_____. He can deduct a total of $______ as a charitable contribution in 2014 and carry forward $______ to future years.
b. What is the maximum amount Ramon can deduct as a charitable contribution in 2014?
If Ramon makes the reduced deduction election, he can deduct $________ in 2014.
c. What factors should Ramon consider in deciding how to treat the contribution for Federal income tax purposes?
In deciding how to treat the contribution for Federal income tax purposes, Ramon should do a present-value analysis to compare the value of the reduced deduction of $______ in 2014 to the value of the regular deduction of $_____ in 2014 plus the $______of deductions to be carried over to future years.
d. Assume that Ramon dies in December 2014. What advice would you give the executor of his estate with regard to possible elections that can be made relative to the contribution?
His executor should make the reduced deduction election, which would yield a charitable contribution deduction of $_______.
Explanation / Answer
a) According to Income Tax Act 1961,
If aggregate of the sums donated exceed 10% of the adjusted gross total income, the amount in excess of 10% ceases to be entitled for tax benefit.
According to US federal income tax , Section 170(c),
If the property that the donor is contributing would have produced either only an ordinary gain or a short-term capital gain had he sold it, then The taxpayer may not deduct contributions in an amount greater than 50% of his adjusted gross income (AGI) in the year of donation.
Any excess may be carried forward for up to 5 years and may be deducted subject to the same limitations.
Hence, Ramon's total charitable contribution deduction is $ 105000. He can deduct a total of $ (180000*50%)= $60000 as a charitable contribution in 2014 and carry forward $ 45000 to future years.
b) maximum amount he can deduct in year 2014 is 50% of AGI i.e. 50% of 180000 = $60000
c)
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