Smith, a single individual, made the following charitable contributions during the current year. Smith's adjusted gross income is $60,000.

Donation to Smith's church: $5,000

Art work donated to the local art museum

(Smith purchased it for $2,000 four months ago and a local art dealer appraised it for) : $3,000

Contribution to a needy family: $1,000

What amount should Smith deduct as a charitable contribution?

a. $7,000

b. $8,000

c. $5,000

d. $9,000

A) $7,000

Explanation:

Smith can deduct the $5,000 he donated to the church he attends. The art work donated to the local museum must be deducted at its basis, which is $2,000. Since he only purchased the painting 4 months before, the price increase will be considered a short term capital gain. Donated short term capital gain property must be deducted at basis.

The $1,000 he donated to the needy family is not deductible, since it wasn't a qualifying organization.