Contents

PERCENTAGE LIMITATIONSrespect to contributions of capital gain property carried over to the tax yearinvolved even though the donor has not made any contribution of capital gainproperty in the year. If this election is made, the 30 percent limitation 68 and thecarryover rules with respect to it 69 are inapplicable to the contributions madeduring the year. 70 This means that the 50 percent limitation applies.In deciding whether to make this election, an individual must determinewhether the 50 percent limitation or the 30 percent limitation is most suitable forhim or her (or them) under the circumstances. A principal factor is usually theextent to which the property has appreciated in value; this election can be preferablewhen the property has not appreciated much in value. Another factor iswhether the donor is seeking the maximum charitable contribution deductionfor a contribution year. Because capital gain property generally is deductibleusing the fair market value of the property, the 30 percent limitation can operateto reduce what would otherwise be a larger charitable contribution deduction ifthe 50 percent limitation applied. This election enables a donor to calculate thededuction by using the fair market value of the property rather than simply thebasis in the property. 71 This rule may be illustrated by the following example:EXAMPLE 7.10M had a contribution base for 2005 of $100,000. During that year, M made a gift of capital gainproperty having a fair market value of $45,000 to PC, a public charitable organization. M’sbasis in this property was $38,000. She made no other charitable gifts during 2005. M wasadvised that if she did not make the election, her charitable contribution deduction for 2005would be $30,000 (30% of $100,000), with a carryover of $15,000 ($45,000 – $30,000). Shewas also advised, however, that if she made the election, her charitable contribution deductionfor 2005 would be $38,000 ($45,000 less the capital gain element of $7,000). Beingparticularly concerned with her tax liability for 2005, M made the election so that she couldhave a $38,000 (rather than a $30,000) charitable deduction for that year. She thus knowinglyabandoned the $15,000 carryover that would have been potentially used in computing her taxliability for 2006.If there are carryovers to a tax year of charitable contributions of capital gainproperty made in preceding, qualifying tax years (subject to the 30 percent limitation),the amount of the contributions in each preceding year must be revisedas if this deduction reduction rule had applied to them in the preceding year, 72and must be carried over to the tax year and succeeding years as contributions ofproperty other than capital gain property. The percentage limitations for the precedingtax year and for any tax years intervening between that year and the yearof the election are not redetermined, and the amount of any charitable deductionallowed for the years with respect to the charitable contributions of capital gainproperty in the preceding year is not redetermined. The amount of the charitable68 IRC § 170(b)(1)(C)(i).69 IRC § 170(b)(1)(C)(ii).70 Reg. § 1.170A-8(d)(2)(i)(a).71 This method of reducing the charitable deduction is the same as that required with respect to gifts of capitalgain property to charitable organizations that are not public charitable organizations (see § 4.5) and for giftsof tangible personal property that are not used for related exempt purposes by the charitable donee (see § 4.6).72 Reg. § 1.170A-8(d)(2)(i)(b). 202