Have a Tax Question? Ask a Tax Expert
Please see for reference IRS publication 526 - http://www.irs.gov/pub/irs-pdf/p526.pdf
If you contribute property with a fair market value that is more than your basis in it, you may have to reduce the fair market value by the amount of appreciation (increase in value) when you figure your deduction.
Different rules apply to figuring your deduction, depending on whether the property is:
Ordinary income property, or
Capital gain property.
Property is ordinary income property if its sale at fair market value on the date it was contributed would have resulted in ordinary income or in short-term capital gain. The amount you can deduct for a contribution of ordinary income property is its fair market value minus the amount that would be ordinary income or short-term capital gain if you sold the property for its fair market value. Generally, this rule limits the deduction to your basis in the property.
Because you owned the horse less than a year - it most likely would be an ordinary income property unless you received it as a gift or inheritance.
To claim deduction of a FMV - the property should be capital gain property - means - its sale at fair market value on the date of the contribution would have resulted in long-term capital gain. Capital gain property includes capital assets held more than 1 year.
If the horse is used as a business property - please be aware that - property used in a trade or business is considered ordinary income property to the extent of any gain that would have been treated as ordinary income because of depreciation had the property been sold at its fair market value at the time of contribution.
Let me know if you need any help with reporting.
how our taxes are calculated?
(Total gross income) - (Deductions) = (Taxable income)
Using (Taxable income) and according to filing status determined (Tax liability)
(Tax liability) - (Tax credits) = (Tax owned or Tax refund)
how donation of your show horse to a college will affect your tax situation?
Such donation is classified as charitable contribution and is included into (Deductions).
how much would you deduct?
assuming you purchase the show horse and because you hold it less than a year - the amount of your deduction is whatever you paid for the show horse or the amount the house is appraised - whatever is less.
what kind of official paperwork do I need?
You will report the deductible charitable contribution on the schedule A - http://www.irs.gov/pub/irs-pdf/f1040sab.pdf line 17 and in additional you need to attach the form 8283 - http://www.irs.gov/pub/irs-pdf/f8283.pdf
For your record - not to be sent to the IRS you need:
-- supporting documents what you paid for the horse - canceled check, receipt, purchase contract, property tax record, etc.
-- you must get and keep a receipt from the charitable organization showing:
-- -- The name of the charitable organization,
-- -- The date and location of the charitable contribution, and
-- -- A reasonably detailed description of the property.
-- If you claim a deduction of over $5,000 for a charitable contribution - you must also obtain a qualified written appraisal of the donated property from a qualified appraiser.
The appraisal must be made not earlier than 60 days before the date you contribute the property. You must receive the appraisal before the due date (including extensions) of the return on which you first claim a deduction for the property.
Is an official equine appraiser the person for this or just a professional trainer?
The appraisal must be made by a qualified appraiser (as defined on page 6) in accordance with generally accepted appraisal standards. It also must meet the relevant requirements of Regulations section 1.170A-13(c)(3) and Notice 2006-96. Notice 2006-96, 2006-46 I.R.B. 902, is available at www.irs.gov/irb/2006-46_IRB/ar13.html.
Who decides this to comply with it being a tax write off?
You are as a tax payer is responsible to make such decision, and calculate amount of deduction and your tax liability.
How much do I get back? Is this based on my income or is there some level of a donation you get back?
Your refund is based on your overall tax situation. Your refund is not determined only based on your charitable contribution. Generally - your tax return should be filled to determine the amount of your refund. To estimate your refund - we may use a tax calculator - for instance - http://www.hrblock.com/taxes/tax_calculators/index.html