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PERCENTAGE LIMITATIONSEXAMPLE 7.12In 2005, A made a charitable contribution to a church of capital gain property having a fairmarket value of $60,000 and an adjusted basis of $10,000. A’s contribution base for 2005 was$50,000 and A did not make any other charitable contributions in that year. A did not elect for2005 to have the deduction reduction rule apply to the contribution. A was allowed, under the30 percent limitation, a charitable contribution deduction for 2005 of $15,000 (30% of$50,000). Under the carryover rules for capital gain property, a A was allowed a carryover to2006 of $45,000 ($60,000 – $15,000) for his contribution of this capital gain property.In 2006, A made a charitable contribution to a church of capital gain property having a fairmarket value of $11,000 and an adjusted basis of $10,000. A’s contribution base for 2006 was$60,000 and he did not make any other charitable contributions in that year. He elected for2006 to have the election apply to his contribution of $11,000 in that year and to his carryoverof $45,000 from 2005. Accordingly, A was required to recompute his carryover from 2005 as ifthe deduction reduction rule had applied to his contribution of capital gain property in that year.If the deduction reduction rule had applied in 2005 to A’s contribution of capital gainproperty, the amount of A’s contribution for these purposes would have been reduced from$60,000 to $10,000, the reduction of the $50,000 being all of the gain ($60,000 – $10,000)that would have been long-term capital gain had A sold the property at its fair market value atthe time of its contribution in 2005. Accordingly, by taking this election into account, A didnot have a recomputed carryover to 2006 in connection with his contribution of capital gainproperty in 2005, because the $10,000 was fully deducted in 2005 (A’s maximum charitablededuction in that year was $15,000 (30% of $50,000)). A’s charitable contribution deductionof $15,000 allowed for 2005 did not, however, have to be recomputed by reason of thiselection.Pursuant to the election for 2006, the contribution of capital gain property for that year wasreduced from $11,000 to $10,000, the reduction of $1,000 being all of the $1,000 gain($11,000 – $10,000) that would have been long-term capital gain had A sold the property at itsfair market value at the time of its contribution in 2006.Accordingly, A was allowed a charitable contribution deduction for 2006 of $11,000. baSee text accompanied by note 65.bReg. § 1.170A-8(f), Example (9).This example also illustrates a circumstance in which the election is inappropriate.In the example, A did not need to make the election in 2006 to causeall of the $11,000 gift to be deductible in that year, because the maximumamount of allowable giving was $18,000 (30% of $60,000). Worse, by making theelection, A lost the economic effect of the $45,000 carryforward to 2005.If a husband and wife file a joint federal income tax return for a year in whicha charitable contribution is made, and one of the spouses makes this election in alater year when he or she files a separate return, or if a spouse dies after a contributionyear for which a joint return is filed, any excess contribution of capital gainproperty that is carried over to the election year from the contribution year mustbe allocated between the husband and wife, as provided under the rules concerningcarryovers of excess contributions. 78 If a husband and wife file separatereturns in a contribution year, any election in a later year when a joint return isfiled applies to any excess contributions of capital gain property of either individualcarried over from the contribution year to the election year. This is also thecase when two individuals marry and file a joint return. A remarried individual78 Reg. § 170A-10(d)(4)(i), (iii). 204