Corporate contributions of computer technology or equipment

In general, when property that would not result in long-term capital gain if sold (e.g., inventory) is contributed to charity, the deduction is based on the cost (basis) the corporation had in the property. Thus, if the donated property cost $10,000, the deduction will be limited to $10,000 even if the property is worth more.

However, if a regular (“C”) corporation contributes certain computer technology or equipment (as described below) to a school or library for use for educational purposes within the U.S., the deduction is increased by half of the difference between basis and value (with an upper limit of twice the basis).

For example, if the donated property's basis is $10,000 and its value is $16,000, the deduction will be $13,000: the $10,000 basis, plus half of the $6,000 excess of value over basis. But if the basis is only $4,000 and the value is $16,000, the deduction cannot exceed $8,000 (the $4,000 basis × 2) under these rules.

To qualify, the donated property must fit productively into the donee's educational plan, and the donor or the donee must be the original user of the property (except for property reacquired by its manufacturer). The donation must be made within three years after the date the taxpayer acquired the property or substantially completed its construction or assembly. The donee may not transfer the property in exchange for money, other property, or services, except for shipping, installation, and transfer costs.

There's no dollar limit on how much computer technology or equipment your corporation can give away under these rules, but the regular overall deduction limit for corporations still applies. So the total charitable deduction for the year cannot exceed 10% of corporate taxable income (as determined with several modifications). Contributions in excess of the 10% limit are carried forward for the next five years (subject to the 10% taxable income limitation each year).

To take advantage of these special rules, certain additional requirements must be met and the donee must provide you with a written statement.

This may be a way for your corporation to increase its charitable deductions substantially.

Bear in mind that these special rules won't apply for contributions made in tax years beginning after Dec. 31, 2011.