Question

Dave makes a gift of a piano ($12,000 cost; $9,000 accumulated depreciation), used in his business, to a church. Which of the statements below is true with regard to the charitable contribution deduction for this donation?

1. None of the answers provided is correct.

2. If the FMV of the piano is $13,000, the charitable deduction is $1,000.

3. If the FMV of the piano is $7,000, the charitable deduction is $7,000.

4. If the FMV of the piano is $13,000, the charitable deduction is $4,000.

5. If the FMV of the piano is $7,000, the charitable deduction is $4,000.

B) The results of Ryan Company’s first 5 years of operations are presented below:

Year Results of Operations for the Year

1 Net Sec. 1231 gains of $7,000

2 Net Sec. 1231 losses of $4,000

3 Net Sec. 1231 losses of $9,000

4 Net Sec. 1231 gains of $6,000

5 Net Sec. 1231 gains of $15,000

Ryan’s Year 5 Sec. 1231 gain can be characterized as:

Group of answer choices

1. None of the answers provided is correct.

2. Ordinary income of $15,000

3. LTCG of $7,000 and ordinary income of $8,000

4. LTCG of $15,000

5. LTCG of $8,000 and ordinary income of $7,000

Answer 1

A) If a gift is donated to a qualified charitable institution, the Fair market value of the gift can be deducted as charitable contribution. The statement, "If the FMV of the piano is $7,000, the charitable deduction is $7,000." is true with regard to the charitable contribution deduction for this donation.
Answer is 3. If the FMV of the piano is $7,000, the charitable deduction is $7,000.

B) If the current year Section 231 is a net gain, it is determined if the look back  rules apply. If the look back rules do not apply, the net gain is characterised as capital gain. Ryan's Company section 231 losses are netted till year 4 and no loss is carried forward to Year 5. Hence, Ryan’s Year 5 Sec. 1231 gain can be characterized as: LTCG of $15,000

Answer is 4. LTCG of $15,000