In 2015, Gray Corporation, a calendar year C corporation, has a $75,000 charitab
ID: 2415169 • Letter: I
Question
In 2015, Gray Corporation, a calendar year C corporation, has a $75,000 charitable contribution carryover from a gift made in 2010. Gray is contemplating a gift of land to a qualified charity in either 2015 or 2016. Gray purchased the land as an investment five years ago for $100,000 (current fair market value is $250,000). Before considering any charitable deduction, Gray projects taxable income of $1,000,000 for 2015 and $1,200,000 for 2016.
Should Gray make the gift of the land to charity in 2015 or in 2016?
Note: If an amount is zero, enter "0".
a. If Gray makes the gift of the land to charity in 2015:
The amount of the deduction would be $ _________and the corporation is able to use $ __________of the $75,000 carryover. The excess of $ _____________would carryover to 2016.
b. If Gray makes the gift of the land to charity in 2016:
In 2015, the corporation is able to use $ ______________ of the $75,000 carryover. In 2016, the amount of the deduction would be $ _____________ and the excess of $ ________________would carryover to 2017.
c. Therefore, Gray should make the gift of the land to charity in year ________.
Explanation / Answer
As per tax rules current year gifts are applied against the taxable income limitation before application of any carryover amounts. The taxable income limitation for 2015 would be completely exhausted by the gift of land in 2015 because 2015 is the fifth year which is last year of the carryover period. So the gift of land in 2015 stops the deduction of $75000. Now according to the tax rules a land which is appreciated is gifted is held for more than one year as investment results in a charitable deduction equal to the land's fair market value but subject to the taxable income limitation. So land is held for one year after 2015 than the charitable deduction equal to the land's fair market value can be taken but subject to the taxable income limitation. Now let us solve the questions:
a If Gray makes the gift of the land to charity in 2015:
The amount of the deduction would be $ _100000________and the corporation is able to use $ __0________of the $75,000 carryover. The excess of $ _____150000________would carryover to 2016.
2015 taxable income limitation: 10% * $1 million = $100,000
Amount of deduction is maximum upto 100000 and $150000(250000-100000) will be carryover upto 5 years
2016 taxable income limitation: 10% × 1.2 million = $120,000
2016 charitable contribution deduction: $120,000 which is carryover from 2015 gift and remaining $30,000 of carryover from 2015 gift carries over to 2017).
b If Gray makes the gift of the land to charity in 2016:
In 2015, the corporation is able to use $ ____75000__________ of the $75,000 carryover. In 2016, the amount of the deduction would be $ __120000___________ and the excess of $ _____________130000___would carryover to 2017.
2016 taxable income limitation: 10% × 1.2 million = $120,000
2016 charitable contribution deduction: $120,000 (gift of land; excess contribution of $130,000 iscarried forward for up to 5 years).
c Therefore, Gray should make the gift of the land to charity in year 2016
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