Corner Grocery,Inc.,a C corporation with high taxable income,donates some of its inventory to the County Food Bank (a charitable organization)which distributes food to the needy.At the time of the contribution,the FMV of the inventory was $20,000,and Corner Grocery's basis was $12,000.Corner Grocery will be allowed a charitable contribution deduction of
A)$20,000.
B)$12,000.
C)$8,000.
D)$16,000.

Question

Quizplus · Accepted Answer

The deduction for charitable contributions of inventory by a C corporation is generally equal to the lesser of the inventory's fair market value or its basis. In this case, the FMV of the inventory is $20,000 and the basis is $12,000, so the charitable contribution deduction is limited to $12,000. However, because the corporation donated inventory that was worth more than its basis, it can also claim a deduction for the appreciation in the inventory's value, up to 50% of its taxable income for the year. Since the appreciation in this case is $8,000 ($20,000 - $12,000), and the corporation has high taxable income, it can likely claim the full $8,000 deduction for appreciation in addition to the $12,000 deduction for the inventory's basis, for a total of $20,000.