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Q: Donate depreciated equitment as business vs. individual ( No Answer,   4 Comments )
Subject: Donate depreciated equitment as business vs. individual
Category: Business and Money > Accounting
Asked by: maf202-ga
List Price: $15.00
Posted: 25 Sep 2002 14:21 PDT
Expires: 01 Oct 2002 16:33 PDT
Question ID: 69044
I am the 100% owner of a small business which owns significant amounts
of computer equipment. Some of this equipment has been 100%
depreciated on the companies books.

I would like to donate the depreciated equipment to a non-profit
organization. It seems there is no tax benefit to donating the
equipment from the
company. But, the equipment does have a fair market value greater then
the fully depreciated value.

Can I make the donations from myself (as an individual) and claim the
FMV as a deduction on my personal tax return? Are there any risks in
this approach?
There is no answer at this time.

Subject: Re: Donate depreciated equitment as business vs. individual
From: emeritor-ga on 26 Sep 2002 03:17 PDT
1) Why would there not be a tax benefit if the company donates the
computers? Does it have to do with the form of business organization
(corporation, LLC, proprietorship, etc)? Need to clarify this in order
to know how to answer.
2) A tax code provision, Sec. 170(e)(1), generally has the effect of
limiting the deduction for gifts of used equipment to the depreciated
value. There is an exception in Sec. 170(e)(6) for certain corporate
contributions of computer equipment to educational organizations.

3) If the equipment is now held by a corporation, transferring it to
you personally could be a taxable event that would negate the benefit
of the deduction when you donate it to charity.

Subject: Re: Donate depreciated equitment as business vs. individual
From: maf202-ga on 26 Sep 2002 07:36 PDT
We are an S corp. If the property were not fully depreciated we would
be able to take the remaining as a deduction.

As I understand it, since the equiptment is fully depreciated on our
books, there is no tax bennefit to the company to donate it.

However, there is a FMV for the property. So the alternative is to
sell it on ebay. We would rather simply donate it for some tax
bennefit rather than going through the trouble of selling it on ebay.

But, if there is zero tax incentive, we may do just that.

Subject: Re: Donate depreciated equitment as business vs. individual
From: pjrc2-ga on 26 Sep 2002 22:24 PDT
>As I understand it, since the equiptment is fully depreciated on our
>books, there is no tax bennefit to the company to donate it.

I do not belive this to be correct.  Deductions for charitable
contributions are set at Fair Market Value (FMV), not book value. 
Just because capital equipment is fully depreciated does not mean that
it has no FMV.

I found the following information in IRS Publication 526 - Charitable
"If you contribute property to a qualified organization, the amount of
the charitable contribution is generally the fair market value of the
property at the time of the contribution." (page 6)

The IRS defines FMV to be, "the price at which property would change
hands between a willing buyer and a willing seller, neither having to
buy or sell, and both having reasonable knowledge of all the relevant

IRS Publication 561 - Determining the Value of Donated Property, has
more information on how to determine the FMV of the donated equipment.

Now to the matter of whether to have the company donate the property
or have you donate the property.

A corporation can claim deductions for charitable contributions (at
their FMV).  An S corporation is a pass-through entity for tax
purposes.  This means that the coporation itself does not pay taxes. 
An informational return is filed with the IRS and the taxes are paid
by the owners of the S-Corp.  The income and deductions of your
corporation are going to be reported on your tax return.  A charitable
contribution reported by your company is going to filed on your
individual tax return.  For S-Corps, charitable contributions are
reported on the Schedule K-1 (The reporting of the shareholders' share
of income, credits, deductions, etc.)

Based on this information, providing that the donation is made to a
qualified organization, your company can donate the computer equipment
to a school, report the donation at FMV on its tax filings, and this
deduction will pass through to your personal tax return.

There are some other restrictions and limitation on charitable
contributions that you should be aware of.   Contributions can be
limited to 50%, 30%, and 20% of adjusted gross income (of the tax
payer).  If the value exceeds certain leves (starting at $250) written
documentation from the recipient is required.  Some very good IRS
publications to check out are:

Publication 526 - Charitable Contributions
Publication 561 - Determining the Value of Donated Property
Instructions for Form 1120S - US Income Tax Return for an S
Instructions for Form 1040 (Instructions for Schedule A, Itemized
Subject: Re: Donate depreciated equipment as business vs. individual
From: emeritor-ga on 27 Sep 2002 21:01 PDT
PJRC-2 stated the general rule for valuing donations -- but alas,
there's an exception for donations of used equipment. IRS Publication
526 goes on to say:

"If you contribute property with a fair market value that is more than
your basis in it, you may have to reduce the fair market value by the
amount of appreciation (increase in value) when you figure your
deduction." and further:

"Property used in a trade or business is considered ordinary income
property to the extent of any gain that would have been treated as
ordinary income because of depreciation had the property been sold at
its fair market value at the time of contribution. See chapter 3 of
Publication 544, Sales and Other Dispositions of Assets, for the kinds
of property to which this rule applies."
"Amount of deduction. The amount you can deduct for a contribution of
ordinary income property is its fair market value less the amount that
would be ordinary income or short-term capital gain if you sold the
property for its fair market value. Generally, this rule limits the
deduction to your basis in the property."

Alternatively, if the S-Corp transfers the computers to its owner, it
will have income equal to the profit it would have if it sold the
computers. (Tax Code Sec. 311(b)) This income will pass thru to the
owner's tax return. The owner could then donate the computers and
deduct the fair value, but the net result is a wash.

'Emeritor ("The Devil is in the details." -'G)

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