Question

Hi. I need help with the following question and need an explanation. I would greatly appreciate it.

In 2019, Gray Corporation, a calendar year C corporation, holds a $75,000 charitable contribution carryover from a gift made in 2014. Gray is contemplating a gift of land to a qualified charity in either 2019 or 2020. 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 2019 and $1,200,000 for 2020. Should Gray make the gift of the land to charity in 2019 or in 2020? Provide support for your answer.

Answer 1

Gray corporation should defer the gift of land until 2020

This would allow Gray to fully deduct in 2019 the carryover amount of $75000

If instead, Gray gifted the land in 2019,the corporation would lose any otherwise allowable deduction as to the $75000 carrying amount. This occurs because current year gifts are applied against the taxable income limitation before application of any carryover amounts. Thus the taxable income for 2019 will be exhausted completely by the gift of land in 2019 precludes any deduction for the $75000. A gift of appreciated land held for more than one year as an investment result in a charitable deduction equal to fair value of land

Assuming a gift of the land in 2020

2019 taxable income limitation 10%×$1 million =$ 100000

2019 charitable contribution deduction $75000(carrying over from 2014 gift)

2020 taxable income limitation 10%×1.2million =$. 120000

2020 charitable contribution deductions :$120000(guft of land, excess contribution of $130000 is carried forward for up to 5 years)

Assuming that the gift of land in 2019

2019 taxable income limitation 10% × $1 million =$100000

2019 charitable contribution deduction $100000( gift of land, excess contribution of $150000 is c/f upto 5 years)

Carryover from 2014 gift of the land ($75000) disappears, as 222019 is the last year of the carryover period.