tive dates. For contributions of tangible personal 

 property this potential tax saving is retroactive to 

 July 1, 1992 (and therefore continues prior law). 



Example: Earl donated a 10-year old trac- 

 tor on August 1, 1992 to a charity that ships 

 them to needy fanners overseas. The fair 

 market value was $3,000 and his adjusted 

 basis in the tractor (its cost less deprecia- 

 tion) was $2,000. Earl paid AMT in 1992. He 

 entered $1000 on line 6a of Form 6251. If he 

 still has some AMT liability after the adjust- 

 ment he will save $240 (The AMT rate in 

 1992 of 24% on $1000). Earl can now file an 

 amended return (Form 1040X) for 1992 

 claiming the $240 refund. 



From January 1, 1993, the appreciated amount of 

 donated real and intangible property will not be 

 subject to AMT either. 



Example: Arthur gave the development 

 rights on a piece of land to an organization 

 whose charitable purpose was to preserve 

 land from development. The rights have a 

 fair market value of $2000. Arthur claims 

 $2000 of charitable deductions on Schedule 

 A (provided his adjusted gross income is 

 sufficient to prevent the percentage limita- 

 tions on charitable deductions coming into 

 effect). He reduces his basis in the land by 

 $2000. There is no AMT tax preference 

 item. 



Effective January 1, 1994, single charitable do- 

 nations of $250 or more may be deducted (on Sched- 

 ule A) only if the charity provides you with written 

 substantiation, including a good-faith estimate of 

 the value of any good or service that you provided. If 

 you donated money, you may not rely solely on a 

 cancelled check as substantiation. Separate pay- 

 ments to the same charity (e.g., by withholding from 

 wages) will be treated as separate contributions, 

 even if they aggregate to more than $250. 



Section 179 Expensing 



The limit on election to expense certain tangible 

 property (Section 179 expensing) is raised from 

 $10,000 to $17,500 for tax years beginning after 

 December 31, 1992. All other provisions remain the 

 same, including reductions in the limit for purchases 

 over $200,000 in any one year and carryover rules. 

 However, the IRS has issued final regulations (T.D. 

 8455, effective date January 25, 1993) that provide 

 clarification for some of the provisions. The main 



issue appears to be the need for, or at least desirabil- 

 ity of, precise record keeping. If you have to 

 carryover some Section 179 expense deduction, you 

 must select the property or properties to which the 

 carryover is allocated. The selection must be re- 

 corded in the year in which the properties are placed 

 in service. If you fail to make and record the selec- 

 tion, the IRS will assume the carryover is appor- 

 tioned according to cost. 



Example: In 1993, Joe purchased a tractor 

 for $20,000 and a baler for $10,000. He 

 elected to deduct $17,500 ($12,500 on the 

 tractor, $5,000 on the baler) but his taxable 

 income was only $7,500 so he carried over 

 $10,000. He recorded the carryover as 

 $5,000 against the tractor and $5,000 

 against the baler. Had he not done so, the 

 IRS would have assumed two-thirds 

 ($6,667) for the tractor and one-third 

 ($3,333) for the baler. 



When only part of the carryover is used in a subse- 

 quent year, you must first use up the oldest 

 carryover, but within the year, you may choose. 



Example: If Joe purchases another 

 $10,000 machine in 1994 and elects to ex- 

 pense the entire $10,000, he can only use 

 $7,500 of carryover before reaching the an- 

 nual limit (of $17,500). Assuming his tax- 

 able income in 1994 is at least $17,500, he 

 might choose to take the baler carryover 

 first ($5,000) and part of the tractor 

 carryover, leaving $2,500 carryover on the 

 tractor to go forward. 



There is no limit on how long Section 179 deductions 

 can be carried forward. However, if a property is 

 sold, exchanged, or given away, unused section 179 

 carryover must be dealt with. 



Example: (no gain or loss) Joe gives his 

 baler to a relative in 1994. He took half-year 

 depreciation in 1993 of $357 (1/2 of 1/7 of 

 $5,000, assuming MACRS straight line de- 

 preciation) and $357 in 1994. His adjusted 

 basis for the baler at time of transfer is 

 $4,286 ($5,000 - $357 - $357). He must 

 increase the basis at the time of transfer by 

 the amount of Section 179 carryover 

 ($5,000) and reduce his Section 179 

 carryover by the same amount. The recipi- 

 ent has an initial basis of $9,286 ($5,000 + 

 $4,286). 



Example: (gain on sale) Joe sells his baler 



Fruit Notes, Winter, 1994 



17 



