8545 / How does the character of property donated to charity (long-term capital gain property, tangible personal property, S corporation stock, partial interests in property) impact the income tax deduction allowed to the taxpayer?

If an individual makes a charitable contribution to a public charity (see Q 8542) of property that, if sold, would have resulted in long-term capital gain (other than certain tangible personal property, see below), the taxpayer is generally entitled to deduct the full fair market value of the property, but the deduction will be limited to 30 percent of adjusted gross income.²

Long-term capital gain property. “Long-term capital gain” means “gain from the sale or exchange of a capital asset held for more than one year, if and to the extent such gain is taken into account in computing gross income.”³

Example: Asher owns raw land he purchased five years ago for $100,000. The fair market value of the land is $500,000. If Asher were to sell the land, he would recognize $400,000 long-term capital gain. Because the land is long-term capital gain property, if Asher contributes the land to a public charity, he would be entitled to a $500,000 charitable deduction. However, the amount deductible would be limited to 30 percent of his adjusted gross income.

If any portion of a gift of long-term capital gain property to a public charity is disallowed as a result of the adjusted gross income ceiling, the taxpayer may carry the deduction over for five years subject to the same 30 percent ceiling.⁴

In lieu of a full fair market value contribution of property subject to the 30 percent ceiling, a taxpayer may elect to take a lesser contribution of the property’s basis subject to the 50 (or 60) percent ceiling. Once made, such an election applies to all contributions of capital gain property during the taxable year (except unrelated use gifts of appreciated tangible personal property, as explained below). The election is generally irrevocable for the year in which it is made.⁵

Example: Asher owns raw land he purchased five years ago for $100,000. The fair market value of the land is $500,000. If Asher were to sell the land, he would recognize $400,000 long-term capital gain. Because the land is long-term capital gain property, if Asher contributes the land to a public charity, he would be entitled to a $500,000 charitable deduction. However, if Asher elects to limit his charitable deduction to $100,000 (the land’s basis), the amount deductible would be 50 (or 60) percent of his adjusted gross income.

See Q 8546 for the rules regarding contribution of property to private foundations.

Tangible Personal Property. The treatment of a contribution of appreciated tangible personal property (i.e., property which, if sold, would generate long-term capital gain) depends on whether the use of the property is related or unrelated to the purpose or function of the (public or governmental) organization. If the property is related use property (e.g., a contribution of a painting to a museum), generally the full fair market value is deductible, subject to the 30 percent ceiling. However, if the property is unrelated to the purpose or function of the charity, the deduction is generally limited to the donor’s adjusted basis.⁶

Other Gifts of Property. The deduction for any charitable contribution of property is reduced by the amount of gain that would not be long-term capital gain if the property were sold at its fair market value at the time of the contribution.⁷ In other words, the amount of such gifts are limited to the basis in the property.

In the case of a gift of S corporation stock, special rules (similar to those relating to the treatment of unrealized receivables and inventory items under IRC Section 751) apply in determining whether gain on such stock is long-term capital gain for purposes of determining the amount of a charitable contribution.⁸