Donna donates stock in Chipper Corporation to the American Red Cross on September 10, 2019. She purchased the stock for $23,800 on December 28, 2018, and it had a fair market value of $34,000 when she made the donation.

a. What is Donna’s charitable contribution deduction?
The stock is treated as property and Donna's charitable contribution deduction is $ for tax purposes.

b. Assume instead that the stock had a fair market value of $20,400 (rather than $34,000) when it was donated to the American Red Cross. What is Donna’s charitable contribution deduction?

(a) $23,800

(b) $20,400

Explanation:

(a) Donna purchased the stock on December 28, 2018 and sold it on September 10, 2019. This means she held the stock for less than 1 year. Hence, she made a short-term capital gain that is treated as ordinary income property for tax purposes.

As per rules, the tax deduction for ordinary income property is the lesser of the adjusted basis and fair market value, that is, the lesser of $23,800 and $34,000. Therefore, the deduction is $23,800.

(b) Again, we compare the adjusted basis and fair market value. In this case, the fair market value is $20,400 which is less than the adjusted basis of $23,800. Therefore, the deduction is now $20,400 only.  

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