No Basis Contribution?

[taxref]

I haven't been here in a while, but this time I have a question rather than an answer.

I have a client who made a large (well over $5K FMV) contribution of a single piece of medical equipment to a qualified charity. I have 2 problems with taking a deduction for it. The first is that he did not obtain a qualified appraisal.

The second, and to me the more perplexing problem, is the fact that he has no basis in the equipment. While I always thought such contributions were limited to the lower of FMV or basis, I cannot seem to find anything in writing regarding the basis requirement. Was I incorrect on that point? Can someone take a FMV deduction even if his basis is lower?

[mwcpa]

does this help...

Reg §1.170A-4 Reduction in amount of charitable contributions of certain appreciated property (a)(1)

"In the case of a contribution by an individual or by a corporation of ordinary income property, as defined in paragraph (b)(1) of this section, by the amount of gain (hereinafter in this section referred to as ordinary income) which would have been recognized as gain which is not long-term capital gain if the property had been sold by the donor at its fair market value at the time of its contribution to the charitable organization,"

Reg §1.170A-4 Reduction in amount of charitable contributions of certain appreciated property (b)(1)

Ordinary income property. The term “ordinary income property” means property any portion of the gain on which would not have been long term capital gain if the property had been sold by the donor at its fair market value at the time of its contribution to the charitable organization. Such term includes, for example, property held by the donor primarily for sale to customers in the ordinary course of his trade or business, a work of art created by the donor, a manuscript prepared by the donor, letters and memorandums prepared by or for the donor, a capital asset held by the donor for not more than 1 year (6 months for taxable years beginning before 1977; 9 months for taxable years beginning in 1977), and stock described in section 306(a), 341(a), or 1248(a) to the extent that, after applying such section, gain on its disposition would not have been long term capital gain. The term does not include an income interest in respect of which a deduction is allowed under section 170(f)(2)(B) and paragraph (c) of §1.170A-6.

But, no appraisal, no tax break.... so part 2 is not relevant.... remember he needs the appraisal BEFORE he files... and the cost of the appraisal is NOT a tax deduction...

[taxref]

Thank you, MWCPA.

The client made the contribution after his parents gifted the item to him. His parents received the item several years ago free of charge from a health insurance company. It would be a capital asset, and with him assuming the gifted asset's acquisition date, it would be a long term asset. He made the contribution a few months after the gift. Based on those details, it would seem the only thing defeating his deduction would be the appraisal.

He has already made the contribution, but has not yet filed for 2011. I doubt any qualified appraiser would give a sight-unseen appraisal (at least I hope one wouldn't).

Edited to add: So it seems the basic answer to my question regarding lower of basis or FMV depends on the holding period. Long term is no, while short term is yes.

[mwcpa]

if it was a gift it's "carry-over" basis and attributes...so it would be long term....I would think (I did not check the law)

[taxref]

I just reviewed the gifted attributes issue to make sure. The holding period of the donor is indeed added to the holding period of the recipient. That would make it long term in this case.

Thank you for the assistance on this.

[rangerj]

Can you get an appraiser to go and evaluate the item? Would the cost of the appraisal be more than the deduction is worth?

[taxref]

I'm afraid the item is long gone, Rangerj. The donation was made almost a year ago, and this is for the client's 2011 1040.

[mwcpa]

ref.... hopefully this is not going to be considered "your fault" by the client for not knowing what he/she did a year ago.... I often love having to deal with that.... client does something, does not tell me and then with a week to go before the tax deadline provides the data and complains when I tell them that they law does not allow what they did (that's often followed up with the my cousin's best friend's uncle's neighbor did X, so why cannot I....)