Bargin sale to charity

[michaelmars]

client has a piano appraised for $60,000 and sells it to a charity for $20,000. Assuming -0- cost, how is the sale reported? i believe the $40,000 difference will qualify as a charitable contribution.

[Kea]

If the client's basis in the piano is $0, the deduction is $0 -- lesser of FMV or basis. And they now have a Sch D gain of $20,000.

You mention $0 cost, but is that the basis?

Was it:

a gift - client's basis = giver's basis (a gift tax return may have been required)

inheritance - basis = FMV on DOD or alt value date

found abandoned on the side of the road - OK basis might be $0

?

Hope that helps.

[Lion EA]

Or, has it been depreciated to $0 (piano teacher, maybe?)?

Was it's value always $60,000 even when he found it on the side of the road or however he obtained it? Or, is this a valuable piano that actually appreciates in value due to it's maker or whatever? If appreciated, that changes the charitible deduction. The Schedule D gain is still $20,000.

[michaelmars]

I GOT IT, i assume it was a gift so -0- basis so yes the D is 20k and the contribution is 40k-fmv of donated goods. If there is a cost it gets pro-rated to D based on value donated vs value sold percentages.

[Lion EA]

Schedule D Is $20,000 proceeds minus cost basis.

Schedule A is LOWER of cost basis or FMV unless it's an appreciated capital investment, like a stock that rose in value.

(If piano was a gift to your client, then his basis is the giver's basis for schedule D purposes? Or, is that only Schedule C? I didn't get much sleep last night, so look that up.)

Under your worst case scenario (cost $0), your client has a $20,000 capital gain and $0 charitable deduction. That's why I asked about appreciation. Not always relevant for an older piano that needs tuning, wood has dried out or warped, strings have stiffened, levers need refurbishing, etc. Maybe it was a $100,000 piano that had dropped in value with age to only $60,000.

[Kea]

You'll want to clarify if gift or not.

With a gift your client's basis is the giver's basis. Will require more digging.

[Lion EA]

Amen! You need his cost basis, and that depends on how he received the piano and what he's done with it (depreciated it, repaired it, etc.)

Then, was this an arm's length gift to a bona fide charity. Or, is it a gift to a music school where he's a teacher and it'll be in HIS classroom? Is he on the board of directors (and does that even make a difference?)? How will the charity use the piano -- sell it at auction to raise funds or use it in their programs per their mission statement or...? That makes a difference on whether your client can deduct what the charitiy receives for their sale or FMV.

You haven't given us enough details to give you an answer,

Attach the formal appraisal to his return.

[jainen]

>>LOWER of cost basis or FMV unless it's an appreciated capital investment<<

It doesn't have to be an "investment," just a long-term capital asset. It can't be inventory (from a music equipment dealer) or include depreciation recapture (from a concert performer), etc. I would also verify that the appraisal is current and qualified--not much of a growth industry for high-priced acoustic instruments these days.

[Kea]

Oops. Sorry Lion. We were posting at the same time, making my last post unnecessary.

[michaelmars]

>>LOWER of cost basis or FMV unless it's an appreciated capital investment<<

It doesn't have to be an "investment," just a long-term capital asset. It can't be inventory (from a music equipment dealer) or include depreciation recapture (from a concert performer), etc. I would also verify that the appraisal is current and qualified--not much of a growth industry for high-priced acoustic instruments these days.

You are correct as to it being a capital asset and the deduction is FMV. appraisal is rock solid and the donor had this in their house and was moving so sold it to a charity for their use. Turns out the cost was $75k so if i read it right 1/3 of cost [since 1/3 of fmv] was sold. thus a non-deductible personal loss of $5k and a donation of $40k

[BulldogTom]

<<so if i read it right 1/3 of cost [since 1/3 of fmv] was sold. thus a non-deductible personal loss of $5k and a donation of $40k>>

I don't think what you just described is the correct treatment. I believe if he sells it for 20K, it is a 55K non-deductible loss. No charitable deduction.

If he gives it to the charity, 60K deduction. (assuming he does not exceed 50% of income)

If he sells it to the charity for 60K, non-deductible loss of 15K, then write a check to the charity for 40K to get the charitable deduction (assuming 50% limit met).

Tom

Hollister, CA

[jainen]

>>appraisal is rock solid<<

So, you are absolutely sure that the form and content of the appraisal complies with Section 170(f), even though you don't know what else that section says? And you are absolutely sure it's reasonable that FMV used would only take 15K off the dealer's price new?

>>sold it to a charity for their use<<

And you are absolutely sure the charity will give the IRS a written two-year promise because it's a donation, even though they paid $20,000?

I have a lot of doubts about this whole thing, doubts which could have been cleared up if the taxpayer had asked for advice BEFORE the transaction. I hope you aren't racing to finish this by Monday, because I think you need more research. The thing that bothers me the most here is that you started out saying, "Assuming -0- cost." With at least $10000 tax break for an uncommon gift arrangement, what you really should be absolutely sure of is that YOU are not exposed to the 50% preparer penalty the IRS is having so much fun with these days.

[michaelmars]

i wanted to assume -0- cost because that would be the worst case situation and at the time i didn't have the cost and thought it might have been a gift. Now i know the donor purchased it for $75k. also, This isn't such an unusual arrangement and ATX even has the input for entering bargan sales on the non-cash input worksheet. You can google "bargin sales to charity" and see that this is fairly common. The appraisor is the same used by sotherby's and christies so there is no doubt as to their valuation, appraisal even included temperature and humidity that they found the room in when they checked out the piano. Its a steinway and i think the temple jumped at the chance to get it at this price considering they are on the Gold Coast of Long Island.

[jainen]

>>appraisor is the same used by sotherby's and christies so there is no doubt as to their valuation<<

All right, then--slap it on and you're good to go! (I'll slide past the fact that you seem to avoid the word "basis.") 40K it is.

[michaelmars]

LOL It was personal use, no depr etc. just a rich lady who bought a piano for her home and kids to avoid piano lessons on.