Daniel Tahara

Ask the Experts: Charitable property donations can be complex

Published: Wednesday, Mar. 6, 2013 - 12:00 am | Page 7B

The April 15 tax deadline is just about a month away. If you've got questions about your state or federal taxes, our local "Ask the Experts" team of California and IRS tax specialists can help.

This week, Daniel Tahara, state Franchise Tax Board expert, and Gregory Burke, a CPA and IRS tax expert, answer readers' questions on donating property and filing taxes for a family trust.

I'm considering donating a vacant lot to Habitat for Humanity to offset taxes on other property that I'm selling. For tax-deduction purposes, can I use the property's assessed value or must I use the estimated market value? If the latter, is the cost deductible? Thanks.

The general rule is that charitable deductions for donations of property are limited to the property's fair market value at the time of the contribution.

However, if the property has increased in value, the donor may have to make some adjustments to the deduction amount. For example, if you contribute property with a fair market value that is more than your basis (what you paid for it), you may need to reduce the fair market value by the amount of appreciation when figuring your deduction. For more information, look at IRS Publication 551, Basis of Assets, at www.irs.gov.

Also, please be advised there are limitations based on the donor's adjusted gross income. Generally, the amount you can deduct for charitable contributions cannot be more than 50 percent of your AGI. Your deduction may be further limited, depending on the type of property you give and the type of organization you give it to. For details, see IRS Publication 526 (Charitable Contributions).

You mention that you are considering donating a vacant lot to offset taxes on other property you sold. Depending on your circumstances, the charitable contribution might not help as much as you would like.

For example, the property you're selling might be considered inventory if you are a developer and have multiple units for sale.

To take a deduction for state or federal taxes, donors need to complete IRS Form 8283 (Noncash Charitable Contributions) and attach an appraisal by a qualified appraiser. (For state taxes, there are no separate FTB forms.)

Because your situation could be complicated, you may want to consider consulting with a tax adviser.

We recently set up a family trust. Are there any different tax forms needed to file our 2012 taxes? And if so, what are they? Thank you.

Whether you have to file tax forms for your family trust depends on whether the trust is revocable (it can be amended or revoked) or irrevocable (can't be changed).

Usually, when spouses create a family trust, the trust is revocable as long as both spouses are alive. If this is your case, the trust itself does not have to file tax returns. At the death of the first spouse, at least a portion of the family trust becomes irrevocable. At that point, the trust needs to file its own tax returns, using IRS Form 1041 and FTB Form 541.

If you established an irrevocable trust at the outset, then it will have to file its own tax returns as explained above.

If you are not sure whether your trust is revocable or irrevocable, read it to see if there are provisions that allow you to amend it. Or check with the attorney who drafted your trust to tell you if it is revocable or not.

– Compiled by Claudia Buck

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