According to the IRS, capital gain property is generally property that would have produced a long-term capital gain if you had sold it at its fair market value on the date you donated it.
In most cases, this means you owned the property for more than one year before making the charitable contribution. When donated property qualifies as capital gain property, special tax rules may apply when figuring your charitable deduction.
What Is a Capital Asset?
A capital asset is usually property you own for personal use or investment purposes. Common examples include:
- Stocks
- Bonds
- Jewelry
- Coin or stamp collections
- Cars and furniture used for personal purposes
These items are generally considered capital assets because they are owned for personal enjoyment or investment rather than for use in a business.
Can Business or Real Estate Property Be Capital Gain Property?
Yes. For charitable contribution purposes, certain real estate and depreciable business property may also be treated as capital gain property if you have held it for more than one year.
However, these assets can be more complicated. Part of the property's value may be treated as ordinary income property, while another part may qualify as capital gain property. This can affect the amount of your charitable deduction.
If you're donating business property, rental real estate, or other assets used in a trade or business, be sure to keep records showing when you acquired the property and how it was used.
Why Does Capital Gain Property Matter?
The type of property you donate can affect:
- Whether your donation qualifies for a charitable deduction
- How much you may be able to deduct
- Which IRS forms or supporting documentation you may need to provide
If you're unsure whether your donated property is considered a capital gain property, gathering information about when you acquired the asset and how you used it can help determine the correct tax treatment. Most tax software will guide you through the questions needed to report the donation properly.
Key Takeaway
Capital gain property is generally property you've owned for more than one year that would have generated a long-term capital gain if sold at its fair market value. Common examples include stocks, bonds, collectibles, and certain personal-use property. In some situations, real estate and business property may also qualify under the IRS rules.