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Example – Gift of Patent by CreatorCapital Asset – Qualified Donee Income (QDI)
Mary developed and patented a bird-protection device for wind turbines. Her cost basis is $100,000 and the value is $1,000,000. She gave the patent to her local food bank. Because she created the patent through her personal efforts and the fair market value is greater than the basis, under Sec. 1221(a)(3) Mary qualifies for a charitable deduction for her basis of $100,000. For gifts of IP that are greater than $500, donors must fill out and include Form 8283 on his or her tax return. Donors must also fulfill the requirements for noncash gifts valued over $250, which require the donor to obtain a contemporaneous written acknowledgement (CWA) that complies with Reg. 1.170A-13(f) and Reg. 1.170A-16(d)(1)(i). Because the IP is valued over $5,000, Mary must obtain a qualified appraisal prepared by a qualified appraiser. Reg. 1.170A-16(d)(1)(ii).
Example – Gift of Partial Interest in a TrademarkPatents – Capital Assets
Tallulah owns a trademark. She wants to give the trademark to her alma mater but retain the right to prescribe the standard of quality of products or services sold under that trademark. She learns that if she retains this right, she will not receive an income tax deduction for the transfer of the trademark to her alma mater. She decides not to retain that right when making her donation to maximize her charitable deduction.
Example – Gift of Entire Interest in Patent
Two years ago, Kate purchased a patent for $400,000 for a device used to polish gems and other valuable stones. The utility patent has 16 years left of its legal life. Kate is so appreciative of the education that she received at her local college that she wants to share the benefits of her patent with the college. She gifts her entire interest in the patent (including the right to all royalties the patent will generate) to the college. Because she gave her entire interest in the patent, Kate is entitled to a deduction for her cost basis plus QDI.
As soon as Kate's patented gem polishing machine went into production, it was in great demand from jewelers around the world. Experts are predicting continued demand for the device and are projecting that Kate's patent could be worth more than $5 million.
Kate's initial deduction for the patent is limited to the lesser of her cost basis or its fair market value. Based upon a qualified appraisal, she is allowed to take a deduction of $400,000, which is her total cost basis. She notifies her local college at the time of the contribution that she is electing treatment as a qualified intellectual property and plans to deduct any QDI. Her local college licenses the patent, receives QDI and files IRS Form 8899. Since Kate will be filing a return for a short taxable year, Kate's deductions are qualified over 12 years, to account for a partial first and final year. She reports no deductions after 12 years.
Date of Contribution Applicable Percentage QDI Kate's Deduction 1st 100 $0 $400,000 (basis) 2nd 100 $200,000 $0 (Not over basis) 3rd 90 $200,000 $0 (Not over basis) 4th 80 $250,000 $200,000 5th 70 $250,000 $175,000 6th 60 $300,000 $180,000 7th 50 $300,000 $150,000 8th 40 $350,000 $140,000 9th 30 $350,000 $105,000 10th 20 $400,000 $80,000 11th 10 $400,000 $40,000 12th 10 $400,000 $40,000 Total Deduction $1,510,000
Example – Gift of Partial Interest in a Patent
Eddie has developed several inventions, including a product that reduces the heat emitted from stage lights. The invention is popular in theatres and playhouses because actors like the way the product reduces heat generated by the lights on stage. Eddie has patented the invention but has not yet found a company willing to manufacture it.
Eddie is a patron of the arts and really enjoys attending performances at the local community musical theatre, a qualified public charity. Eddie grants the theatre a non-exclusive license to use his invention. Eddie's grant of a license is not deductible because he retained a substantial right in the patent. Eddie retained ownership in the patent, the right to grant further licenses and a right to any future income from the patent.
A charitable gift annuity is a great way you can make a gift to our organization and benefit. You transfer your cash or property to our organization and we promise to make fixed payments to you for life at a rate based on your age.more
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