The tax bill passed by Congress and signed into law by the president on Friday, December 18, made permanent what is popularly known as the
charitable IRA rollover. This provision enables IRA owners over the age of 70½
to transfer to charities up to $100,000 per year from their IRA accounts without
having the distributions added to taxable income while having them count
towards mandatory distributions.
Since the law was first enacted in 2006, Congress commonly
acted in late December to extend the law for one year, retroactive to the beginning
of the calendar year. Unfortunately, once action was taken, donors had very
little time to advise their IRA administrators to make charitable transfers and
many, not wanting to incur a penalty for failing to take the mandatory
distributions, had proceeded to take a personal distribution of the required
amount.
Now, the uncertainty has been removed. A donor who wants to
make a gift from an IRA can plan in advance, no longer waiting anxiously to see
if the legislation is once again extended.
In making the provision permanent, Congress did not change
the rules. As before,
- The limit remains at $100,000 per year.
- The gift cannot be made to a donor-advised fund, supporting organization, or private foundation.
- The donor can receive no financial benefit in exchange for the gift, which rules out transfers for gift annuities, charitable remainder trusts, and pooled income funds.
Three Other Provisions That
Are Made Permanent
Although the charitable IRA rollover is getting most of the
attention, there are other provisions benefiting charities that were also made
permanent.
- One provision is enhanced deduction limits allowed for charitable contributions of real property for conservation purposes. This will be welcomed by environmental organizations that regularly receive such gifts.
- A second provision valuable to food banks that depend on donations of food from producers is an enhanced deduction for gifts of food inventory. The allowable deduction is the lesser of either twice the basis or basis plus one-half of the appreciation.
- A third is favorable treatment of basis adjustment when an S corporation contributes appreciated property. Instead of having to reduce basis in their S stock by their share of the fair-market value of the contributed property, they need to reduce only the basis in their S stock by their share of the basis of the contributed property. This provision makes it more advantageous for owners of S corporations to cause their company to contribute appreciated property.
Future Goals
Making the charitable IRA rollover provision for outright
gifts as well is one goal of the charitable community. The other is to expand
the provision to include transfers from an IRA to charity for a gift annuity or
to a charitable remainder trust. This would appeal to the large number of
donors who do not feel they can afford to forego income from contributed IRA
assets but would consider a charitable gift of some of those assets if they
could receive income. An organization
known as the Charitable IRA Initiative continues to work on behalf of the
charitable community to attain this goal.
