Chartible Deduction Question

A member of my NPO asked me this question. He can buy activity patches for $1.00 a piece. He can then donate them to the club, and they sell it for $3.00 a piece. He is claiming that he can take a deduction of $3.00 since that is what the club is receiving. He uses the analogy that if he donates a car to a charity and they sell it for $2,000 he can take the $2,000 deduction.

Seems wrong to me and I said I'd ask this group.

Thoughts (Specifically pointers to applicable IRS rules would be most appreciated if he can not do this!).

Thanks - Andrew

Reply to
Andrew
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There is quite a difference between gifting property held long term vs short term.

If held short term, the deduction is limited to the Lower or FMV at time of gift or cost basis.

That would seem to apply here.

If held long term (more than a year) and is appreciated property, the deduction may qualify to be the FMV at time of gift.

Further, for many types of property (shares of securities being a clear exception) the charitable organization must use the property

for its intended purpose. Works of Art should be displayed, for example, and not sold three days after receipt of the gift. In fact, selling it within 24 months of gift would limit the deduction to lower of FMV or cost basis.

Note that the gift of a car does not appear to be a gift of appreciated property, so gift is limited to lower of FMV or cost. The FMV is actual FMV but not more than the amount shown on the Form 1098-C given by the charity to the donor. If the car sold for $500 or less, a 1098-C is generally not issued.

Try Pub 526.

Reply to
Arthur Kamlet

I thought it was lower of sales proceeds or FMV.

Seth

Reply to
Seth

Is the club a 501(c)(3)?

Reply to
removeps-groups

Yes, it is a 501c3. Sorry, should have used that more technical term than 'NPO'. But I am still at a loss as to what people are saying above. Can my co-member take a $1 or $3 deduction for these patches; yes, they will be bought and donated and resolded within a month.

Reply to
Andrew

Of course they can be bought for $1 and donated to a 501c3 within a month.

The charitable deduciton is $1.

Reply to
Arthur Kamlet

He can deduct his cost or what they sell it for, whichever is less. So no, he can't buy them for $1 and deduct them at $3.

Reply to
Stuart A. Bronstein

Is the 501(c)(3) allowed to sell an item at a profit? Will this generate UBTI income? If yes, then is the income on $3 or $2?

Reply to
removeps-groups

As I read this, I remember the old days when I was a member of a fishing club. Every year about the time new officers were installed, the club would beg various vendors selling sporting goods for donations. Sometimes they would get lowered prices on an expensive fishing rod. Other times the donations were without any cost to the club. I never liked the idea because the value of those goods ended up in higher costs for other buyers who had no affiliation with such clubs.

So, if I read the posts in that thread, the donating companies can only deduct the actual value of the donated equipment and not the wholesale price they would charge retailers or distributors. Is that correct?

I would not be surprised if the valuation of donated equipment ended up being inflated.

Bill

Reply to
Salmon Egg

Normally, yes. If it is actually a capital asset purchased for investment purposes (rather than to give or to re-sell) the donor might be able to deduct the value, even if it is higher than the original cost to acquire. But it's a pretty narrow exception. (This was the rule the last time I checked, which was several years ago, so it may have changed. Hopefully someone with more recent knowledge will come along soon to clarify.)

Reply to
Stuart A. Bronstein

NPOs include other types of organizations; for example clubs organized under 501(c)(7) which do NOT qualify as charities for contribution purposes.

Reply to
D. Stussy

In general, yes.

If the sale is pursuant to its exempt purpose, then no.

Seth

Reply to
Seth

LOTS OF SNIPPAGE

Here's the short version -

You can deduct the LOWER of cost or market value for an item like you describe - PERIOD, END OF STORY.

For stocks & bonds, different rules apply.

For appreciated property like real estate, different rules apply.

Gene E. Utterback, EA, RFC, ABA

Reply to
Gene E. Utterback, EA, RFC, AB

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