The Intricacies of Charitable Contributions

January 20, 2017

This article was co-authored by Richard Lee.

Generally, charitable contributions of “ordinary-income” property also known as tangible property held less than one year are limited to the cost of the property.

In certain instances, there are exceptions to this “cost” rule, allowing for a higher or enhanced charitable contribution where the value of the property exceeds its cost.

For example, a contribution of inventory by a regular corporation that is not an S corporation, to a public charity or private operating foundation can result in an enhanced charitable deduction. The deduction is equal to the cost of the property plus one-half of the property’s unrealized appreciation, but with such deductions being limited to not more than twice the cost of the property.

To qualify, the donated property:

  • Must be used directly by the charity in connection with its exempt function activities, to care for the ill, the needy, or infants.
  • Cannot be sold by the donee organization in exchange for money, other property, or services.
  • Must be acknowledged, in writing, as having been received from the donor corporation, subject to the foregoing limitations; and,
  • Must have fully met any applicable requirements under the Federal Food, Drug and Cosmetic Act, and regulations promulgated thereunder, as of the date of the gift and during the prior 180 days.

In the case of a donation of food used in a trade or business, both corporate including S corporations and non-corporate taxpayers are entitled to the foregoing enhanced charitable deduction.

These general rules have various intricacies, based on specific factual circumstances. For more information or questions, please contact Aronson’s Nonprofit and Association Industry Services Group at 301.231.6200.