IRA Charitable Rollover for 2015 Experiences Turbulence

The word from Washington, DC is that tax reform has stalled in Congress until after the 2016 election. And what about the tax extenders, including the now-expired IRA charitable rollover? As of a couple of weeks ago, Congress appeared to be on a slow glide path to vote through a 1-year extension for 2015 in mid to late December. It is still possible that Congress might fear the ire of frustrated supporters and constituents during the 2016 election year enough to vote through a 2-year extension for 2015 and 2016. It is also possible the extension could stall out, and John Boehner leaving the pilot seat as House Speaker may factor into that.

That means a donor over age 70 ½ who wants to make a gift to charity from their IRAs may want to remain seated until the year has come to a full and complete stop. In other words, don’t take the minimum required distribution for 2015 as a taxable distribution just yet (keep your seatbelt fastened) in case the extension lands, but be ready to use emergency exits by taking the taxable distribution in December if the extension stalls out. In past situations where the extension had not passed, some have advised donors to do the gift before year-end as a direct transfer from the IRA to charity in order to qualify for the IRA charitable rollover exclusion in case of an extension, with the backup plan to count the gift as a taxable distribution and claim a (hopefully) offsetting charitable deduction. However, we are getting feedback this year about IRA administrators who are unwilling to do that, and prefer to remain seated until the extension has landed.

Donors can shortcut all that and land their IRA minimum distribution gift now. As we explained back in February 2014: the major tax advantage of the IRA charitable rollover, exclusion of the IRA charitable rollover from adjusted gross income (AGI), may in the end be of no or limited net value to many donors. In lieu of completing an IRA charitable rollover, they could simply receive a taxable IRA distribution and then contribute that amount to charity. In return, they would receive a deduction. So long as they itemize their deductions, live in a state that also allows charitable deductions or doesn’t have an income tax, and are able to use the full deduction in the year of the gift without bumping into any of the rules that limit the charitable deduction that can be claimed or where having a higher AGI reduces other tax benefits, they would be in the same tax position as if they had made an IRA charitable rollover gift.

Update: Congress was able to pass a budget deal at the end of October, which did not include the tax extenders but is a good sign they will get to that before they adjourn in December.