Name: Basic Income Tax - Part 9
Uploaded: 2017-08-10T15:08:59.000Z
Duration: 47 min 33 s
Description: Thousands of YouTube videos with English-Chinese subtitles! Now you can learn to understand native speakers, expand your vocabulary, and improve your pronunciation...

Okay. We want to  in our last session, we stopped with contributions, and so I want

to pick back up with contributions and start at that point as we are in chapter 5 covering

itemized deductions, still covering the section of itemized deductions. Contributions, we

looked at cash contributions, and there's some substantiation limitations on when I

contribute  make contributions if they are 200  less than $250, canceled checks will

do. 250 to  or above, there's going to have to be some type of a written acknowledgment

from the company or from the charitable organization. Anything 500 over, there's a form you have

to fill out in addition to the written confirmation. $5,000 is going to require you to have a appraisal.

And so then we looked at contributions of property. Generally, when you contribute property

you can get a deduction equal to the fair market value of the property. That's the general

rule. When the property would have been sold for ordinary income or shortterm capital gain,

you know, instead of me contributing had I sold it and I would have gotten ordinary income

or shortterm capital gain, then my deduction is going to be the fair market value minus

ordinary income or the shortterm capital gain. If the property that I sold would have yielded

longterm capital gain on the sale, then generally for the deduction I can get the fair market

value. If it would have been donated to a  to certain organizations, and they list those

organizations, or donated to an organization and wasn't used for its intended purpose,

like donating artwork to a museum, that's its intended purpose, donating artwork to

a university to hang in the president's office is not. So if it's a situation that it is

donated in that manner, then you would have to take, your deduction would be the fair

market value minus the longterm capital gain. Okay. So we picked up, I want to start at

the percentage limitations that appear at the bottom of page 512. These limitations

gets confusing, so basically the way I like to go over them is I will read that passage

in the textbook, and then we will make a few notes on that. So starting at the bottom of

page 512 under a percentage limitations, this is generally a taxpayer may not deduct total

contributions in excess of 50% of the taxpayer's adjusted gross income. So on our handout we

wrote deductions basically are going to be 50% of AGI, that's my general rule. And this

is for donations that are made to, as the book says, this 50% limitation applies to

donations to all public charities and all private operating foundations and private

nonoperating foundations. If they distribute their contributions to public charities within

a specified period, so that works for those. Now, gifts to other qualified organizations,

such as certain private nonoperating foundations, fraternal societies and veterans organizations,

as well as gifts for the use of an organization are going to be limited to 30%. So basically,

donations to private nonoperating foundations, and they listed some other ones, fraternals,

and also for the use of the organization. So if it's for the organization to use. Okay?

In that case, it's going to be limited to 30%. It's going to be limited to 30% of their

AGI. Okay? They go on to say special rules apply to contributions of longterm capital

gain property, okay? So longterm capital gain property. If the full fair market value of

a gift of longterm capital gain property is deducted and the contribution is to a 50%

organization, the contribution is subject to the 30% limit. So under my 30% limit, I

have contributions made to those particular foundations and for those that are using it

within the organization, and in addition, it's going to be limited to 30% of  the AGI

is fair market value longterm capital gain property that's given to a 50% organization.

Okay. So we have longterm capital gain property that would have yielded longterm capital gain

property that's given to a 50% organization, which is public or private charities, organization.

in this case the deduction's going to be limited to 30% of the AGI. So let's look at that again.

It says special rules apply to contributions of longterm capital gain property, so contributions

of longterm capital gain property. If the full fair market value of a gift of longterm

capital gain property is deducted and the contribution is to a 50% organization, then

that contribution is going to be subject to the 30% limit. So it's going to be subject

to the 30% limit. It goes on to say, now, taxpayers may avoid this 30% limit on contributions

of longterm capital gain property by electing to reduce the value of the property by the

appreciation that would have otherwise been longterm capital gain, in which case, then,

the 50% applies. So you're thinking, what? What are they referring to? They're saying

that if we have this property here that is fair market value, longterm capital gain,

meaning I've contributed property and I'm going to get a deduction of fair market value

and it's longterm capital gain and I made that contribution to a 50% organization, they're

saying this amount of my deduction is going to be limited to 30% of my AGI. Okay? They

said, now, you can elect out of that. Now, you can elect out of the 30% and get the 50%

limit to the AGI if  this is only allowed if you reduce the value by the appreciation

of the property. So if you reduce the value by the appreciation of the property. So you're

thinking, okay, still what does that mean? And actually, they have a pretty good example

of it at the top of page 512  I mean, 513. The first example, we have a Carol donates

publicly traded stock worth 15,000 to a qualified 50% charity. The original purchase price of

the stock ten years ago, so because longterm capital gain, I held it for more than a year,

so she had it for ten years, so if she would have sold it, it would have yield longterm

capital gain. So she has this publicly traded stock worth $15,000. She gave it to a 50%,

a qualified 50% charity. The original stock price ten years ago was $10,000. It was $10,000.

Because the stock is a gift of longterm capital gain property, Carol's deduction is limited

to 30% of her adjusted gross income. Given that Carol's adjusted gross income is 20,000,

she may take a deduction of 6,000. So given that, and I'm visual, so let's kind of write

this down, let's deal with what's going on in the example, I think it's important to

see. We're looking at the example that's on page 513. We're looking at that first example.

She donated stock. 15,000 was the fair market value at the time of the sale. She originally

paid $10,000 for it, that was her original cost, so she has a $5,000, and it would be

a longterm capital gain. She has a $5,000 longterm capital gain. This stock would be

limited to 30% of her AGI, that would fall into 30% of her AGI. Carol's AGI is 20,000,

okay? So 30% of her AGI is 6,000. Okay? So she would be limited to a $6,000 deduction.

Okay. So given that Carol's AGI is 20,000, she may take a deduction of 6,000, 30% of

her AGI, and may carry the remaining 9,000 over. So what they're saying is that she has

longterm capital gain, but she's going to get a deduction, she can get a deduction of

the 15,000. She can get a deduction of the 15,000. And so it's going to be limited to

30% of her AGI, so she can take 6,000, and the remaining 9,000 will be carried for. So

let's keep looking at the example. It says given that Carol's AGI is 20,000, she may

take a deduction of 6,000 and may carry the remaining 9,000 forward to the following year.

Now, she can elect, okay, because remember it's limited to 30% of her AGI, alternatively

Carol may deduct the 10,000 cost of the stock using the 50% AGI rule which would give her

$10,000 deduction in the current year. Even though she would have a larger deduction in

the current year, she will lose the 5,000. So you're like, okay, what do we mean? Okay?

so let's look at what happens. She can make an election to have it limited to 50% of her

AGI in the current year, which in this case would be $10,000. If she takes the fair market

value of 15,000 reduce it by the appreciation of the property, the appreciation is basically

the growth, in this case $5,000. Okay? So that means in the current year, 2008, in that

example she would get a $10,000 deduction. She would get a $10,000 deduction. Now, she

can get that, and that's all she would get, but she would be able to get the full deduction

this year. Under the 30% rule, she would get 6,000 in 2008, because that's all she would

be able to get, but the remaining 9,000 could be carried forward. So here she gets a total

of 15,000dollar deduction but she's only going to be able to get 6,000 this year. The rest

she has to take in a later year. And in this one she gets a $10,000 deduction this year,

and that's it. So it's kind of up to her how she wants to do it because it's an election