Question

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Coattail Corporation (CC) manufactures and sells women’s and children’s coats. This year, CC donated 1,000 coats to a qualified public charity. The charity distributed the coats to needy women and children throughout the region. At the time of the contribution, the fair market value of each coat was $80. Determine the amount of CC’s charitable contribution (the taxable income limitation does not apply) for the coats assuming the following:

a. CC’s adjusted basis in each coat was $30.

b. CC’s adjusted basis in each coat was $10.

Answer 1

The firm is eligible for deduction towards charitable contributions.

a. CC’s adjusted basis in each coat was $30.

The number of coats donated = 1,000

The value of each coat = 80

Basis = 1000 * 30 = 30,000

Appreciation = (1,000 * 80) - (1,000 * 30) = 50,000

Deduction will be 50% of appreciation plus basis but not to exceed twice the basis

50,000 * 50% + 30,000 = 55,000 which is less than twice the basis.

Therefore, CC's charitable contribution = 55,000

b. CC’s adjusted basis in each coat was $10.

The number of coats donated = 1,000

The value of each coat = 80

Basis = 1000 * 10 = 10,000

Appreciation = (1,000 * 80) - (1,000 * 10) = 70,000

Deduction will be 50% of appreciation plus basis but not to exceed twice the basis

70,000 * 50% + 10,000 = 45,000 which is greater than twice the basis.

Therefore, CC's charitable contribution = 20,000