- To figure potential capital gains taxes, taxpayers should recalculate the gain on the property, according to the IRS. The formula is (the adjusted basis of the property x (the sale price divided by the fair market value of the property)).
- The IRS provides the following example for this calculation. A taxpayer sells a building valued at $10,000 to a charity for $2,000. The adjusted basis -- which is the price the buyer paid for a building plus any improvements -- is $4,000. Using the formula, ($4,000 x ($2,000 / $10,000)) shows a taxable gain of $1,200.
- The calculation for gains when a property is used partly as a business or rental property is a little trickier. If the taxpayer lived in part of the property and rented the rest out, the sale must be treated partly as if two separate pieces of property are sold. If, for example, one third of a home was rented out, then one third of the sale price must be allocated to the rental property when figuring gains. A complete example can be found in IRS Publication 544.
- To qualify as a charitable donation, the property in question must be sold to a 501(c)3 organization, and other rules common to charitable deductions apply. These can be found in Publication 526. One big issue is the cost of appraisal. This cannot be deducted as a charitable contribution, but it does count toward the 2-percent threshold for charitable contributions.
Formula
Example
Property Used Partly for Business or Rental Property
Tricky Factors
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