Tax Incentives for Deconstruction and Personal Property Donations - Corporate Taxpayer

Not only are provisions in place for individuals to donate materials and personal property to qualified nonprofits and government agencies but favorable tax provisions are in existence for corporations.

A corporation can claim a deduction for charitable donations in cash or other property to a qualified organization.

If the Cash Method is used for revenue and expense recognition, the donation is taken in the tax year in which it was paid. For corporations using the Accrual Method, the deduction can be taken in the year in which the BOD authorizes the donation.

In general, a corporation cannot deduct charitable contributions that exceed 10% of its taxable income with a 5-year carryforward. Like donations for individuals, adequate documentation must be retained within corporate records.

Taxable income does not include the following:

• The deduction for charitable contributions
• The dividends-received deduction
• The deduction allowed under section 249 of the Internal Revenue Code for bond premiums
• Any domestic production activities deduction
• Any net operating loss carryback to the tax year
• Any capital loss carryback to the tax year

Just like individual taxpayers, a corporation must obtain a qualified appraisal for property claimed in excess of $5,000 value. When the value exceeds $500,000 the appraisal should be attached to the return. At TGMI, we recommend tax preparers and CPAs attach the pdf or paper copy of the appraisal to all returns, even those under the $500,000 threshold.

The corporation must reduce the contribution value by the sum of “the ordinary income and short-term capital gains that would have resulted if the property were sold at its Fair Market Value; and for certain contributions, the long-term capital gain that would have resulted if the property were sold at its Fair Market Value.” The long-term capital gain applies if a corporation donates to an exempt organization who is not going to use the property to further their basis for its exemption (typically described as their mission). This also applies when donations are made to certain private foundations with the exception of a stock donation. Finally, this applies when certain intangible assets (patents, trademarks, etc.) are donated.

Special Treatment for Inventory Donations:

There is a great tax planning strategy for corporations able to donate inventory. They may be able to claim a deduction equal to the lesser of:

• The basis of donated inventory or property plus half of the inventory’s or property’s appreciation (gain if sold at FMV on date of donation)

or

• The basis of donated inventory or property plus half of the inventory’s or property’s appreciation (gain if sold at FMV on date of donation).

Fully Depreciated Donated Assets:

In many cases, the assets of a corporation may be fully depreciated at the time of donation. As set forth by the IRS, the donation value is limited to the lesser of the FMV or the basis. In this case, the basis could be zero. So, why would a corporation still consider a donation?

• Certain deconstructed materials from a corporate donation may not have been depreciated. For example, consider a hotel that is being renovated. The furniture may be fully depreciated but some of the building materials might not have been included on the balance sheet and could have inherent value to the nonprofit and the Fair Market Value could be deducted.
• A corporation can seek LEED and Zero Waste environmental initiative certifications by deconstructing and donating rather than demolishing and trashing.
• Videographers and photographers can document the donation process and advertising and marketing can be geared towards communicating that the company made a “Green” choice over demolition. Further, nonprofits can be included in interviews (with their permission) with reference to how those donations will be used towards fulfilling their missions.