Garth Corporation donates inventory having an adjusted basis of $40,000 and an FMV of $150,000 to a qualified public charity. The inventory will be used by the charity to care for the ill. The maximum charitable contribution deduction before consideration of the 10% limitation is

Question

Quizplus · Accepted Answer

The charitable contribution deduction for donations of inventory is generally limited to the lower of the donor's basis in the inventory or the inventory's fair market value (FMV), with an additional limitation of 10% of the donor's adjusted gross income (AGI). Therefore, in this case, the deduction is limited to $40,000 (the basis of the inventory). However, because the inventory is being donated to a qualified public charity for use in caring for the ill, the 50% of AGI limitation applies instead of the 10% limitation. Thus, the maximum charitable contribution deduction before consideration of the 10% limitation is $80,000 (50% of the donor's AGI).

Garth Corporation Donates Inventory Having an Adjusted Basis of $40,000