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§ 4.4 GIFTS OF ORDINARY INCOME PROPERTYThis rule applies:• Irrespective of whether the donor is an individual or a corporation• Irrespective of the tax classification of the charitable organization that isthe donee (for example, public or private charity) 34• Irrespective of whether the charitable contribution is made to or for theuse of a charitable organization 35• To a gift of ordinary income property prior to application of the appropriatepercentage limitation(s) 36EXAMPLE 4.3A is an individual. On June 15, 2005, A contributed to a charitable organization shares of stockhaving a fair market value of $5,000. A acquired the stock on March 1, 2005, for the purchaseprice of $3,000. A’s charitable deduction, computed to the extent of this deduction reductionrule, was $3,000. The amount of this deduction was equal to A’s basis in the stock. Moretechnically, A was required to reduce the potential charitable deduction ($5,000) by theordinary income element ($2,000). This result was required because A did not hold the stocklong enough for the shares to become long-term capital gain property rather than short-termcapital gain property.EXAMPLE 4.4B, an individual, contributed to a charitable organization intangible property to which certainrecapture rules a apply. The property had a fair market value of $60,000 and an adjusted basis of$10,000. If the property had been sold by B at its fair market value at the time of thecontribution, $20,000 of the gain of $50,000 ($60,000–$10,000) would have been treated asordinary income (because of the recapture rule) and the remainder ($30,000) would have beenlong-term capital gain. B’s contribution of $60,000 had to be reduced by $20,000. baIRC § 1245.bReg. § 1.170A-4(a).EXAMPLE 4.5C is a corporation, in the business of selling appliances. In 2005, C contributed certainappliances, having a fair market value of $25,000, to a charitable organization. C acquiredthese appliances in 2004 for $15,000. C’s charitable deduction, computed to the extent of thisdeduction reduction rule, was $15,000. (If C had donated these appliances for the benefit ofthe ill or the needy, or infants, a greater charitable contribution deduction might have beenavailable.) aaSee § 9.3.34 See § 3.4.35 See § 10.2.36 See Chapter 7. 131