On September 23, 2005, President George Bush signed into law new tax incentives for charitable gifts. Many of the new provisions apply to victims of the Hurricane Katrina efforts, but Congress also included additional incentives to help support all charitable organizations as the nation pulls together during these difficult times.
Elimination of 50 Percent Cash Limitation
Prior to the enactment of the new law, a donor could contribute cash up to 50 percent of his or her adjusted gross income and up to 30 percent for gifts of long-term capital gain property (e.g., stocks, real estate held for more than one year) to public charitable organizations. Under the new law, Congress has eliminated the 50 percent cap on the deductibility of certain charitable contributions. In other words, a donor may contribute and deduct gifts up to 100 percent of his or her adjusted gross income if the gift is made:
-
In cash (gifts of property such as stocks and real estate do not qualify under this new legislation)
-
Between August 28, 2005, and December 31, 2005 and
-
To a charitable organization whether or not the charitable organization is engaged in Katrina relief efforts. (This includes the Binghamton University Foundation, but excludes gifts made to charitable remainder trusts, donor advised funds, private foundations and supporting organizations.)
In addition, gifts made in accordance with the new law are not subject to the reduction rule that reduces itemized deductions by 3 percent of the amount of adjusted gross income over $145,950.
For example, Harry has given $40,000 generously to the Katrina relief effort, but he also wants to continue benefiting the charitable organizations in which he gives to every year during the fourth quarter. Harry's adjusted gross income in 2005 is $200,000. Harry can, under the new law, make and deduct additional cash gifts to charitable organizations up to $160,000.
Indirect IRA Rollover
Because of the elimination of the 50 percent cap on the deduction for cash gifts, and the elimination of the 3 percent reduction on itemized deductions, a new opportunity exists. A donor can use this opportunity to make a cash gift and deduct up to 100 percent of his or her adjusted gross income if the donor withdraws funds from his or her IRA or other qualified retirement plan. This opportunity exists if the donor:
- Is over age 59 1/2 and
- Uses the funds to make a cash gift under the above provisions.
The amount withdrawn, however, will be added to the donor's taxable income and then deducted as a charitable gift. Although it may seem at first blush to be a "wash" from a tax perspective, the additional taxable income will inflate the donor's adjusted gross income. The result is that it may cause the loss of other deductions or personal exemptions and thus, may not be a total wash. In a typical scenario, a relatively small additional tax of 1 - 2 percent may still be imposed.
In addition to the 1 - 2 percent tax, not all states allow charitable deductions against income causing additional taxes to be incurred on a state income tax return. Therefore, please check with your tax professionals if you are contemplating a charitable gift under this new tax law.
Contact the Binghamton University Foundation Gift Planning Office with questions you may have. Phone 607-777-4712 or e-mail giftplan@binghamton.edu.
Back to
Alumni Connect Home |
