Question

In December each year, Eleanor Young contributes 10% of her gross income to the United Way (a 50% organization). Eleanor, who is in the 28% marginal tax bracket, is considering the following alternatives for satisfying the contribution. Fair Market Value (1) Cash donation $169,000 (2) Unimproved land held for six years ($25,350 basis) $169,000 (3) Blue Corporation stock held for eight months ($25,350 basis) $169,000 (4) Gold Corporation stock held for two years ($202,800 basis) $169,000 Eleanor has asked you to help her decide which of the potential contributions listed above will be most advantageous tax-wise. Evaluate the four alternatives and complete a letter to Eleanor. Determine the amount of the charitable contribution for each option. Charitable Contribution Cash donation $ 169,000 Unimproved land held for six years ($25,350 basis) $ 169,000 Blue Corporation stock held for eight months ($25,350 basis) $ 25,350 Gold Corporation stock held for two years ($202,800 basis) $ 169,000 Hoffman, Young, Raabe, Maloney, & Nellen, CPAs 5191 Natorp Boulevard Mason, OH 45040 December 5, 2017 Ms. Eleanor Young 2622 Bayshore Drive Berkeley, CA 94709 Dear Ms. Young: I have evaluated the proposed alternatives for your current year-end contribution to the United Way. I recommend that you sell the Gold Corporation stock and donate the proceeds to the United Way. The four alternatives are discussed below. A donation of cash, the unimproved land, or the Gold stock will result in a $ 169,000 charitable contribution deduction. Donation of the Blue Corporation stock will result in only a $ 25,350 charitable contribution deduction. A direct contribution of the Gold Corporation stock will be a poor decision from a tax perspective in that the decline in value is not deductible and the amount of the charitable contribution would be $ 169,000 . If you sell the Gold stock and give the proceeds to United Way, the donation of the proceeds will result in a $ 169,000 charitable contribution deduction. In addition, sale of the stock will result in a $ --------------long-term capital loss. If you have capital gains of $--------- or more this year, you can use the entire loss in computing your current taxable income. If you have no capital gains this year, you can deduct $ ----------------of the capital loss this year and carry over the remaining $------------ loss to future years. You should make the donation in time for ownership to change hands before the end of the year. Therefore, I recommend that you notify your broker immediately so that there will be no problem in completing the donation on a timely basis. Please let me know if you have any questions or would like to discuss my recommendation and the related analysis. Thank you for consulting our firm on this matter. We look forward to serving you in the future. Sincerely, Nora Oldham, CPA

Answer 1

In addition, sale of the stock will result in a $ 33800 (202800-169000) long-term capital loss. If you have capital gains of $2000 or more this year, you can use the entire loss in computing your current taxable income. If you have no capital gains this year, you can deduct $ 3000 of the capital loss this year and carry over the remaining $30800 loss to future years. You should make the donation in time for ownership to change hands before the end of the year.