In 2021, Gray Corporation, a calendar year C corporation, has a $75,000 charitable contribution carryover from a gift made in 2016. Gray is contemplating a gift of land to a qualified charity in either 2021 or 2022. Gray purchased the land as an investment five years ago for $100,000 (current fair market value is $250,000). Before considering any charitable deduction, Gray projects taxable income of $1,000,000 for 2021 and $1,200,000 for 2022.

Required:
Should Gray make the gift of the land to charity in 2021 or in 2022?

A charitable contribution is an expense that an individual or a corporation incurs by donating to a qualified charitable organization. The IRS allows the corporation to deduct this from its taxable income. Gray Corporation can gift 25% of its taxable income in charitable contributions in any tax year (starting from 2021).

The reason that Gray Corporation should defer the gift of the land until 2022 is to enable it fully deduct the carryover contribution amount of $75,000 in 2021 since 2021 is the last year it can be deducted. Otherwise, it lapses (five years).

Data and Calculations:

2021 2022

Taxable income $1 million $1.2 million

Limit of charitable

contributions $250,000 $300,000

($1,000,000 x 25%) ($1,200,000 x 25%)

Carryover charitable $75,000 $0

Maximum it can gift $175,000 $300,000

Thus, though the allowable charitable contribution has been increased from 10% to 25% for corporations, Gray Corporation should still gift the land in 2022, otherwise, it lapses after 5 years in 2021.

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