If you donate a patent or other intellectual property to a qualified organization after June 3, 2004, your deduction is limited to the basis of the property or the fair market value of the property, whichever is less. Intellectual property means any of the following:
- Copyrights (other than a copyright described in Internal Revenue Code sections 1221(a)(3) or 1231(b)(1)(C).
- Trade names.
- Trade secrets.
- Software (other than software described in Internal Revenue Code section 197(e)(3)(A)(i).
- Other similar property or applications or registrations of such property.
Additional deduction based on income.
Some businesses, such as this Dallas law firm use donations as a core tax strategy. You also may be able to claim additional charitable contribution deductions in the year of the contribution and years following, based on the income, if any, from the donated property.
The following table shows the percentage of the organization’s income from the property that you can deduct for each of your tax years ending on or after the date of the contribution. In the table, “tax year 1,” for example, means your first tax year ending on or after the date of the contribution. However, you can take the additional deduction only to the extent the total of the amounts figured using this table are more than the amount of the deduction claimed for the original donation of the property.
|Tax year||Deductible percentage|
After the legal life of the patent or other intellectual property ends or after the 10th anniversary of the donation, no additional deduction is allowed.
The additional deductions cannot be taken for patents or other intellectual property donated to certain private foundations.
You are required to inform the organization at the time of the donation that you intend to treat the donation as a contribution subject to the provisions discussed above. The organization is required to file an information return showing the income from the property, with a copy to you.
The IRS expects to issue more guidance on these rules early in 2005. To find out if that guidance has been issued, check the Internal Revenue Bulletin.