on reading further:
2. Is the entity taxed as a partnership? If the interest is in an LLC, determine whether it is taxed as a partnership or as a corporation. Under the check-the-box regulations (Regs. Secs. 301.7701-1 to -3), it is possible that an election was made to tax the entity as a corporation, not a partnership. Yes the entity is taxed as a partnership.
3. How much of a charitable deduction the client will realize. Generally, the taxpayer’s charitable deduction of property is the fair market value (FMV) of the gifted property less the amount that would be ordinary income or short-term capital gain if the property were sold at its FMV (unless the gift is to a private foundation, in which case the deduction is generally limited to the FMV of the property or the donor’s basis in the property) (Sec. 170(e)(1) and Regs. Sec. 1.170A-1(c)(1)). The shares I donated were given to a non-profit Trust, which was having a fundraiser to cover outstanding mortgages in an associated non-profit corporation. They were able to sell the shares I purchased in 2012 at $10,000 for FMV of $11,000 3 months later after I donated them.
In the context of a partnership interest, the FMV of a contributed partnership interest generally is the FMV of the donor’s share of the FMV of the partnership’s assets less the donor’s share of the partnership’s liabilities. However, because of the ordinary income rule, a partnership’s ordinary income assets, including Sec. 751 “hot assets” (i.e., unrealized receivables and inventory), may be included in the deduction only to the extent of the donor’s basis in the partnership. This part I am not sure I understand..... Can you explain this further? Does this mean I use the adjusted basis given in the schedule K-1 or the adjusted basis in the QBI Statement A or do I use the FMV of the sale that happened after I donated the shares? It was noted that the FMV was about the same when I donated the shares, there was no real change in the FMV between the two events of donating and selling the shares.
In addition, the taxpayer must give the charity the entire partnership interest, or an undivided portion of the partnership interest, to obtain the tax deduction (Sec. 170(f)(3)). I did give the entire partnership interest of the shares as a donation without strings attached.
