USA: 4 Charitable giving tax breaks in play
24 July 2014
Posted by: Author: Ashlea Ebeling
Author: Ashlea Ebeling (Forbes)
Two old charitable giving tax breaks that have expired and two new ones have passed the House, leaving charities delighted.
"Charities are very, very happy,” says Conrad Teitell, a tax lawyer at Cummings & Lockwood in Stamford, Conn. and author of the newsletter Taxwise Giving. The House passed the "America Gives More Act of 2014” (H.R. 4719) on July 17, with a bipartisan majority vote of 277-130 (the naysayers didn’t object to the ideas, but the fact that they come at a cost to the Treasury).
It’s progress, but the fate of the four provisions is still uncertain, and likely won’t be known until after the November elections when the Senate would take them up. Here’s a rundown so you can plan your giving accordingly.
Two of the charitable breaks are so-called "tax extenders,” legislation that has lapsed but is typically renewed one or two years at a time along with dozens of other tax provisions.
Charitable IRA Rollover. This tax extender encourages older Americans to give out of their Individual Retirement Accounts, a giving strategy that allows IRA owners age 70-1/2 or older to exclude up to $100,000 a year from income if the IRA funds are paid directly to certain public charities. (Otherwise, the IRA owner would have to pay tax on the IRA funds before claiming the deduction.)
For taxpayers who don’t normally itemize their deductions and so don’t get to deduct their contributions anyway, it’s a winner, and for taxpayers who usually do itemize, it may also leave them ahead. Here’s how the math works.
Charities are still hoping for an add-on to the provision that would make the rollover more useful as retirees search for lifetime income options. The idea would be to allow taxpayers to roll IRA funds into a charitable remainder trust or a gift annuity starting at age 59-1/2—the charity and the retiree split the money, with the retiree getting lifetime income (that’s taxable so there’s no added cost to the Treasury). "Many more people would do that because a lot of people can’t afford to give it all,” Teitell says.
Enhanced conservation easement breaks. This would be a big win for conservationists. The enhanced incentives have helped farmers, ranchers and other modest-income landowners increase the pace of land conservation. The House would make the enhanced tax breaks for donating conservation easements first put in place in 2006 (and expired Dec. 31, 2013) permanent.
With a conservation easement, you give some or all of the development rights on your land to a government agency or not-for-profit, and you get a federal income tax deduction for the gift. They allows a non-farmer donor to use a conservation donation deduction to wipe out 50% of his adjusted gross income in any year, up from the normal 30% that is a permanent part of the law. The enhancement break also allows a donor to carry forward any unused write-off for a full 15 years, instead of the normal five. Farmers and ranchers can offset up to 100% of their adjusted gross income with conservation donations, potentially zeroing out their tax liability for the next 15 years. There are more than 1,700 local land trusts which can help broker a donation; the Land Trust Alliance keeps track here.
Charitable giving extension. This new idea does away with the year-end rush for making charitable gifts and basically gives donors the opportunity to consider or reconsider making charitable gifts up until their tax return is due and still snag a tax deduction for the prior year. Here’s how it works: Gifts made by an individual after the close of a taxable year (say 2014) but before the tax return due date (say April 15, 2015) could be treated as if made in that taxable year (2014). The charitable giving extension would lead to larger and additional charitable gifts, says Teitell.
Simplify private foundation excise tax rules.This change would eliminate the unwieldy two-tier excise tax imposed since 1969 on private foundation’s investment earnings and replace it with a single 1% rate. The current system actually discourages payouts. According to the Council on Foundations: "That measure will lift an administrative burden that creates a perverse incentive for private foundations to give less, not more, in times of need.”
What’s the likelihood of these four provisions making it? The fate of the charitable giving extension and the private foundation excise tax break is uncertain as the Senate hasn’t considered the ideas yet. The Senate Finance Committee passed a tax extenders package in April, which includes the IRA charitable rollover and the enhanced conservation breaks—but it renews them for two years only through 2015. So those two have a good chance at renewal—if not permanency.
This article first appeared on forbes.com.