Among the many changes wrought by the tax law passed at the end of 2017, one welcomed by the charitable community was the increase in the deduction limit on gifts of cash to public charities from 50% of a donor’s adjusted gross income (AGI) to 60%. We have read this section of the new law carefully and determined that the application of the 60% limit is more complicated – and, well, limited – than many realize. We lay out below how we understand the 60% limit should be applied and how it interacts with the 30% and 50% limits.
The Tax Cuts and Jobs Act of 2017 (the Tax Act) doubled the standard deduction and capped deductions on state and local taxes at $10,000, while retaining the income tax charitable deduction. The doubling of the standard deduction and capping state and local taxes means far fewer taxpayers will itemize their deductions on Schedule A of Form 1040. Fewer itemizers will mean fewer people benefiting from the itemization of their charitable deductions. The Council on Foundations is predicting a drop of $16B - $24B in charitable giving off a base of $390B. That’s about a 5% drop. A study by the Lilly Family School of Philanthropy projects a potential decline in charitable giving of 1.7% to 4.6%.
You undoubtedly are aware that among the changes found in the new tax law is a doubling of the lifetime exemption for federal gift, estate, and generation skipping transfer taxes. This doubling is effective January 1, 2018 and is set to expire December 31, 2025.
By now you are aware that the IRA Charitable Rollover has been extended through the end of 2013.
Looking ahead to 2013, there are a few tax increases on the horizon that will affect gift planning. In particular, the Bush tax cuts are scheduled to expire at the same time new tax increases are scheduled to take effect.