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TCP CPA Practice Questions: Non-Cash Property Donations
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May 20, 2024
In this video, we walk through 5 TCP CPA exam practice questions teaching how non-cash property donations work as itemized deductions. Important Links Link to the free study training webinar mentioned in the video: https://www.superfastcpa.com/strategic-study See the full post for this video: https://www.superfastcpa.com/tcp-cpa-practice-questions-explained-non-cash-property-donations/ See the other TCP walkthrough videos here: https://www.superfastcpa.com/free-tcp-cpa-practice-question-walkthroughs/ 00:00 Intro 00:53 Question 1: Donating Long-Term Capital Gain Property 03:00 Question 2: Donating to Public vs. Private Foundations 06:25 Question 3: Donating Depreciated Property 08:19 Question 4: Donating Services to a Charity 09:52 Question 5: Donating Tangible Personal Property Not Used for the Primary Charitable Purpose 12:17 Pillar Topics
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Welcome to another TCP walk-through video
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I'm Logan, and in today's video, we're going to be going over donating non-cash property
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And we're going to be doing that, the Super Fast CPA way, which is diving straight into questions to learn the material
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Now, if you don't know much about our strategies and you want to learn more, make sure you go to superfastcpa.com and check out our free one-hour webinar training
0:22
We go over the key ingredients to passing the CPA exam. And again, it's one hour, it's free, and it will save you so much time struggling with your process
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you definitely want to go check it out. The link will be in the description. Also, just letting you know
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we will only be going over five questions in this video, but members of Superfast CPA will
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have access to the full 10 question video when we post it on the members forum. So if you like this
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you can get more of it and more practice by becoming a superfast CPA member. All right
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with that said, let's dive straight into the questions. Okay, here is question one. John
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purchased a parcel of land as an investment five years ago for $50,000. The fairer
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The fair market value of the land at the time of donation is $80,000
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He donates the land to a qualified charitable organization. Assuming John's adjusted gross income for the year is $100,000, calculate the maximum deduction
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John can claim for the donation of this land on his tax return this year, considering the
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limitations on charitable contributions of capital gain property. Okay, so this is the first question of the video
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We might not really know what the limitations are for capital gain property donations
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So let's go ahead and click on the answer to start learning how this works. Okay, and the answer is that he can only deduct $30,000 of those charitable donations
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So let's take a look at this. When donating property such as land that has been held for more than one year, a taxpayer
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is generally allowed to deduct the fair market value of the property at the time of the donation
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For John, the fair market value of the land he donates is $80,000. However, there are specific limitations on deductions for charitable contributions
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based on the type of property donated and the type of organization to which it is donated
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donations of long-term capital gain property, such as John's land, to a public charity are limited
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to 30% of the donor's adjusted gross income. In John's case, with an AGI of $100,000, that means
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he's limited to $30,000 with this type of property. Furthermore, the IRS allows a total
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deduction for charitable contributions up to 50% of AGI. So overall, no matter what kinds of
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properties all added up together, it can only be 50% of the AGI. And that includes cash donations and
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other types of charitable contributions. Any amount that exceeds these limits can be carried forward
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for up to five subsequent tax years. So it can be carried forward to be used in other years
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still falling under the same restrictions. Given that the value of the land is 80,000
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and that exceeds the 30% threshold of 30,000, that means he'll take $30,000 of the donation
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this year as a deduction, and then $50,000 will be carried over for the next five years to be
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used in the similar manner. Okay, we learned a little bit about capital gain
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being donated. So let's go ahead and go to the next question. All right, here is question
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two. Margaret wants to donate a piece of artwork she purchased 10 years ago for $20,000. The artwork's
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current fair market value is $50,000. Earlier in the year, she donated $40,000 in cash to a qualified
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public charity. She is now considering donating the artwork to either the same public charity or a
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private foundation. Her adjusted gross income for the year is $100,000. Calculate the maximum
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deduction Margaret can claim for the donation of the artwork to both a qualified public charity
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and to a private foundation considering the rules for Capital Games property donations So it asking basically how much of this donation will be counted as a deduction if she donates to a public foundation or to a private foundation Now just letting you know
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this is probably the most complicated it's going to get in this video. This is kind of a weird
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rule. So let's go ahead and look at the answer to start learning how it works. Okay, and the answer
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is that she would only be able to deduct 10,000 for a public charity and 10,000 for a private
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foundation. But there's some weird rules here. So let's go ahead and look at each of them
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So for the qualified public charity, Margaret's AGI is 100,000, so that means she has the $30,000 limit for that
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However, she has already contributed $40,000 in cash, which is part of the 50% overall limitation on charitable contributions
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That means that that only leaves her with $10,000 of her AGI available for any further charitable contributions under the 50% cap
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And again, that's for this year. The donation of artwork to the public charity is limited to the lower of its fair market value, $50,000, or the remaining part of her
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her 50% AGI limit for total charitable contributions, which is 10,000. So basically, if she had not
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donated anything else, she would have been held to that 30% rule, but because she's already
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donated cash and that brings her close to the 50% overall AGI limit, then she can only do 10,000
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And that technically is the same thing for the private foundation, but there are some weird rules
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for the private foundation, even if that wasn't the case. So let's learn about the private foundation. So if you're donating to a private foundation, the maximum deduction for capital gains
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property to a private foundation is the lesser of 20% of the AGI, so no longer the 30%, or the excess of
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30% of AGI over the amount used for public charity capital gain property donations. So again
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this is really strange. So if you're donating to a private charity, but you've already donated to
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other public charities, then your maximum contribution that you can count for donating to a private
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charity is the lesser of 20% of AGI or any amount that was over 30% of the AGI that you've
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already donated to public charities. So let's look at this. Since she already donated 40,000 to public
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charities, that means that only $10,000 is over that 30% AGI limit. So that means the lesser of
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the two, you know, 20% of AGI, 20,000 or the $10,000, that means that's the most that she
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could have donated to a private foundation being the lesser of the two. Again, she would have been still
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limited by the 50% rule, but when it comes to private foundations, there is that strange rule where
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it's limited to 20% of AGI, or again, anything over 30% of AGI that was donated to public charities
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So private foundation donations can be affected by what you've already donated to public charities
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So again, that was kind of the weird rule in this video. Let's go ahead and go to the next question to start learning some other things
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Okay, here is question three. Thomas acquired office furniture for his business two years ago for $10,000
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Due to a business model change, he no longer needs this furniture, which now has a fair market value of $7,000
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He decides to donate his office furniture, which has not been appreciated in value
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to a local charity that qualifies under IRS regulations. Thomas's AGI for the year is $150,000
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Assuming this is his only charitable contribution for the year, calculate the maximum deduction Thomas can claim for the donation of the office furniture
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Okay, so the question here. is really is he going to be able to use his cost basis or the fair market value? That's pretty
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much the question here because obviously he's well below the 50% of a GI limitation. So think
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about it for a second. And when you're ready, come back, we'll look at the answer together. Okay and the answer is So it the fair market value Let read about this For non property donations that do not qualify as a capital games property i the property has not appreciated
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in value since it was acquired, the deduction is generally limited to the lesser of the cost
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basis or the fair market value of the property. In Thomas's case, the office furniture was purchased
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for 10K, but now has a decreased fair market value of 7K. So his deduction limit, again, it doesn't
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really matter in this case because he's way below it. So we would just full on take the fair market
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value as a deduction. Something to always remember, though, is that there is always that 50
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AGI limit for charitable contributions. So if he had donated something way, like a lot more stuff
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if he had donated something with a fair market value of $80,000, he still would have been limited
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to half of the AGI, which was $75,000, so the remaining $5,000 would have been carried over
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But this is just a simple reminder that for stuff that's not capital gain property, you know, stuff that didn't appreciate in value, then it's the fair market value on the date that you donate it
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All right, let's go ahead and go to the next question. Okay, here's question four. Elena is a professional graphic designer who volunteers to create a promotional banner for a charity event organized by a local nonprofit community center
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The market value of her services for such work would normally be $400
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$1100. Elena also incurs $45 in expenses for materials, which she purchases specifically for the
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banner and are not reimbursed by the nonprofit. What is the total deductible amount Elena can
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claim for her charitable efforts this year? Okay, so the question is, does the fair market value of
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her work and also do the expenses count as charitable contributions? We're not sure. So let's go
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ahead and look at the answer to see how this works. Okay, only $45, so only the expenses that she incurred
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IRS does not allow deductions for the value of services provided to a charity
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That's just the rule right there. Therefore, while Elena's professional services have a market value of $400, this amount is not deductible
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However, unreimbursed expenses directly related to the service provided, such as the $45
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spent on materials, are deductible. Thus, the only deductible amount Elena can claim is the $45 for the materials she purchased
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and used for the charity event. So if you're providing a service to a charity and, you know, let's say you're a lawyer or
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something like that and your services are worth $1,000, those services do not count as a charitable
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contribution. But if you spent $50 for some kind of material or thing that you needed to provide
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that service and the charity did not reimburse it, then that counts as a charitable contribution
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Okay, let's go to question five. Okay, here is question five. Emma donates an antique vase to a local
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animal shelter, which plans to auction it off to raise funds for its operations
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Emma purchased the vase 10 years ago for $15,000, and its current fair market value is $45,000
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Her adjusted gross income for the year is $100,000. The vase is classified as tangible personal property, and its use by the shelter, selling
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it at an auction, is not related to the shelter's primary charitable purpose, and that is
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important that it's mentioning that there. What is the maximum amount Emma can claim as a charitable contribution
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deduction for her donation. Okay, so this is another kind of strange rule. So if you want, go
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ahead, pause the video, see if you can think through this or if you maybe already know how this works. But otherwise, again, it's kind of a strange thing. So let's go ahead and look at the
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answer to learn how this situation works. Okay, she can only deduct $15,000. So that's the
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amount she purchased it for, not the fair market value. So let's read about this. When donating
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tangible personal property personal property is anything that like not real estate not a building basically or not land those kinds of things And tangible means that it like physical It not stocks or bonds or things like that
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When donating tangible personal property, such as an antique vase, to a charity, the deduction is normally the fair market value of the item
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However, the deduction is limited to the donor's cost basis if the charity does not use the property in a way that is related to its tax-exempt purpose
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So in this case, the animal shelter intends to sell the vase at an auction, which is not a use related to its tax-exempt purpose, such as animal care or shelter operations
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So because they're not using it specifically for what their job is, it is limited instead of the fair market value to the cost basis
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So she can only deduct $15,000 of it. Just remember that there's still that 50% AGI limit always, but in this case it didn't matter because $15,000 is way below her $15,000
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thousand dollar limit. But again, this is kind of one of those weird situations where if you're donating
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tangible personal property, but they're not going to use it, like it's not useful to them in their
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actual business and they're just going to sell it for money or things like that, then you can only
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take the cost basis of that property instead of the fair market value as a deduction. Okay, we learned
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about a lot of non-cash property donations so far. So before we go any further, let's go ahead and do
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one more part of the process called pillar topics. Now, the idea of behind pillar topics is as you're going through the questions to learn the material, you will notice
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things that keep popping up. These are the topics that are obviously important. You've seen them
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three, four, five times throughout the questions. These are calculations that you keep having to
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practice while you're going through the material. Things that are obviously important according to
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your review course that you need to know for the CPA exam. So you take a second and write down those
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pillar topics so that you know them and can remember them for later. So let's go ahead and look at
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the pillar topics for this video. Okay, here are the pillar. topics. When volunteering for a charity, while the value of the services provided cannot be
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deducted, unreimbursed expenses directly connected to the services are deductible. If the donated
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tangible personal property like artwork or collectibles is not used by the charity in a way that
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aligns with its tax-exempt purpose, the donor's deduction is limited to the cost basis rather
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than the fair market value. Also, for donations of capital gain property to public charities
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the deduction is typically limited to 30% of the donor's adjusted gross income, whereas for
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private foundations, it's often limited to the lesser of 20% of AGI or the excess of 30% of AGI over
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contributions for public charities. And that's always kind of a weird wording. Just remember with that
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one, it's any amount that was over 30% of AGI that was donated to public charities. So again
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anything over that 30% and it's the lesser of the two. Also remember that there is overall that 50
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AGI contribution limit. That's always there. And then finally, if the amount of a charitable deduction
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exceeds the applicable percentage limitation in a given year, the excess can be carried forward for up to five subsequent years
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So if you can't use all of your charitable contributions as a deduction in the current year
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it can be carried forward for up to five years used in a similar manner. All right, with that, that's the end of the pillar topics, and that is the end of the video
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Thanks for watching. Make sure you go check out our free one-hour webinar training on superfast at cpa.com
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so you can learn more about our strategies. Again, it's one hour, and we teach you the key ingredients to passing the CPA exam
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Make sure you go check it out. Also, if you liked the format of this video, again, just a reminder that super fast CPA members will have access to the full 10 question video when we posted on the members forum
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If you liked this video, make sure to like it and leave a comment. I hope this was helpful, and I will see you in the next video
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