Certain portions of the market value of non-cash donations, such as short-term capital gains, are made non-deductible by I.R.C.
A contribution to a charitable organization need not be fully a "gift" in the statutory sense of the word to be deductible to the donor.
The donor's allowable deduction will be reduced, however, by the amount of the "substantial benefit" conferred upon them as a result of their contribution.
[1] To illustrate, suppose that the American Cancer Society is hosting a formal dance as a fund-raiser (the ACS is a certified charitable organization).
She decides to volunteer her time at a non-profit (certified charity) soccer camp, located in Los Angeles for a week.
In the ordinary course of things, Joy would charge $10,000 for these services, plus costs of transportation, board, and child care.
As is common in federal income taxation, there are several special rules and limitations that apply: 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 he may deduct only his adjusted basis in the contributed property.
The taxpayer may not deduct contributions in an amount greater than 50% of his adjusted gross income (AGI) in the year of donation.
Her business is doing well so she decides to donate some of last season's inventory to The Women's Sports Foundation, a certified charitable organization.
If Abby had sold the inventory, she would have recognized an ordinary gain of $200,000 (fmv of $600,000 minus adjusted basis of $400,000).
If a donor is contributing property that would have yielded a long-term capital gain in a sale, then the deduction for the contribution is limited to 30% of donor's adjusted gross income in the year of donation if the donee is a public charity, and limited to 20% if the donee is a private foundation.
This restriction helps certain investors avoid giving themselves into such a low bracket that the tax value of the donation is impaired.
Only an investor who holds the asset until the capital gains have become long-term is allowed to deduct the appreciated market value.