Question

Allison is the sole shareholder of Destiny Corporation, which operates a travel agency for business travelers. Allison would like the corporation to donate some used computers to a local private school dedicated to the education of young ladies. The private school is a tax-exempt organization that qualifies donors for the charitable deduction. The corporation purchased the computers two years ago for a total cost of $90,000, and for tax purposes expensed this entire amount in the year of the purchase under the first-year expensing rule of Section 179 of the Internal Revenue Code. Currently the fair market value of the computers is $40,000. Allison has asked you to determine what the corporation's tax deduction will be for this donation. The corporation's taxable income is sufficient for it deduct up to $50,000 in charitable contributions.

Answer 1

Answer.

• Here, fair market value of the computers as on the day of donation = $40,000.

• The Corporation's taxable income available for deduction for charitable contributions = $ 50,000.

• Though, the entire cost of computers was claimed under Section 179 of IRC, as per Section 170 of IRC, the amount of fair market value of a capital asset donated to a charitable organisation is considered as charitable donation and is eligible for deduction. (for this purpose, asset used in a business is considered as capital asset)

• Hence, the corporation's tax deduction for this donation = $ 40,000.

Thank you.