Charitable Deduction of Inherited Real Property

$20,000 deduction for 2009; $35,000 carried forward to 2010. See the instructions for Schedule A.

Phil Marti Clarksburg, MD

Total donations of: $55,000.

2009 Deduction: $20,000. Carryforward to 2010: $35,000. Carryforward last year: 2014.

Form 8283 and an appraisal are required, in addition to the usual letters confirming the contributions by the recipient charities.

Could the donor/taxpayer choose to deduct the FMV of the real estate instead of it tax basis and thereby get a 30%-limited deduction which

*might* - I say *might* - last longer and thereby end up in a higher tax bracket? No guarantees, but *could* this work out to the taxpayer's benefit?

A house is capital gain property, right? So the 30% rule would apply for the house (max $12,000), and the 50% rule for the cash (max $20,000), with a combined max of $20,000. In this case the deduction would be $17,000 ($12,000 plus $5,000).

However publication 526 says "However, the special 30% limit does not apply when you choose to reduce the fair market value of the property by the amount that would have been long-term capital gain if you had sold the property. Instead, only the 50% limit applies." That seems to mean that if you deduct the cost basis you get to use the more generous 50% rule. The value of the home is probably similar to what it was on 6/1/2009, maybe even less, so we could make the election. Is this why you said the limit is $20,000.

In addition:

Do we have "Temporary Suspension of 50% Limit for Midwestern Disaster Area Contributions" in 2009? If so, then the $5,000 may be subject to the 100% limit, provided that it is used for relief efforts.

It might be a good idea to convert IRA to Roth. Doing this will increase your AGI, but the itemized deduction would wipe out half of it.

If the donated property's FMV is less than basis, the donor must deduct FMV.

That question makes no sense. As the donor inherited the property 29 days before donating it, his tax basis is equal to FMV. Therefore, what's the point of stretching it out NOW and losing $8,000 of the current year deduction? If it turns out that later years are in a higher tax bracket, he can go back and amend this later.

Why would basis be different from FMV?

He inherited it 29 days before the donation date. Upon inheritance, his basis IS FMV, and 29 days is not going to change the valuation.

What you're saying makes legal sense, but not necessarily practical sense.

Technically someone inherits property on the day the donor dies. But it may be months or even years before he receives paper title to the property and has the ability to donate it. The property value can easily change over that time.

Yes, but in this case, it was still 29 days. That hasn't changed.

Well, actually, he donated it 11 months prior to inheriting it.

Seth

OOPs! The actual donation date was 06/30/2009 (not 06/30/2008). Thanks Seth for pointing that out Wally