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Morgan Horse Memo

In:

Submitted By maeg41390
Words 287
Pages 2
Memorandom

To: Tax Manager
From: Sarah Garlick
Date: 11/9/11
Re: Mr. and Mrs. John Smith – Morgan Horse

Facts:
The Smiths’ Adjusted Gross Income is $170,000 and taxable income is $140,000. They have an opportunity to deduct more from their taxable income. The Smiths purchased the Morgan Horse for $10,000 six years ago for their daughter to ride, and they spent an extra $4000 to train the horse. The Smiths are looking to donate the horse to the local police unit. The estimated fair market value of the Morgan Horse is $24,000.
Issues:
1) Should Mr. and Mrs. Smith donate the Morgan Horse to the local mounted police unit? 2) How much can they deduct for 2011 as a charitable contribution?
Conclusions:
The Smiths should donate the Morgan Horse to the local police unit. In the event they donate the horse, they should recognize and deduct the $24,000 fair market value of the Morgan Horse.
Discussions:
The donation of the Morgan Horse is considered a donation of appreciated capital gain property because the Smiths have owned it for more than one year, and would recognize a long term capital gain if the horse was sold at the date of the contribution to the local police department. If the Smiths donate the horse to the public charity and the charity will use the horse for their primary function, the fair market value of the Morgan Horse can be recognized as a charitable contribution. Also, deductions for contribution of capital gain property are limited to 30% of the adjusted gross income. Since the Smiths charitable contribution is less than 30% of their adjusted gross income, the full fair market value is deductible.

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