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My client and his spouse would like to transfer a rental property that they own to a Community Foundation. The Foundation will sell the property and the funds will be invested in a donor advised endowment fund held by the Foundation. We client the property in the 90s for about $93,000 and it has been depreciated since then as a rental property. Not sure what our basis would be. I suspect it may seem for $175,000-$200,000. I was told we could take a charitable deduction in the tax year based on 30% of AGI. The balance of the deduction could be taken over the next few years.


The BIDaWIZ Team's Answer:

As a general rule, you can use the fair market value of the property when determining the charitable deduction for capital gain real property. In this instance, your deductible donation is limited to 30% of your adjusted gross income. However, you can choose to deduct up to 50% of your adjusted gross income, but the deductible amount is calculated as the fair market value less any capital gain or loss realized. This effectively would become your basis in the property. Please note that the depreciation is irrelevant for you as the property was placed in service after 1986 and the straight-line method was used. No depreciation recapture is necessary as the depreciation recapture of residential property retains the IRC Section 1250 rules, the amount of depreciation in excess of straight-line is recaptured as ordinary income in the year of the sale (IRC Section 1245(a). Thus, if straight-line was used, no recapture is necessary.
You are correct that you can carry-forward any deductions from charitable contributions that you were not able to deduction because of the AGI limitations. The carry-forward is up to five years.
You should receive a receipt from the organization detailing the nature of the gift donated. Please note that you need to File Form 8283 with the IRS to report the donation.
References: Internal Revenue Code Section 170(b)(B)(i) & IRS Publication 526.
State: Maryland

The BIDaWIZ Team



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