What do these recent tax changes due to the Tax Cuts and Jobs Act mean for donors?
With the new charitable incentives and other tax provisions, charitable giving — particularly major and planned giving — is poised to become even more attractive for donors who look for ways to reduce their taxes.
Consider Marla, who is 85 years old and widowed. She owns a small condominium worth $175,000 and has an income of $75,000 per year. This year, she is considering funding a $15,000 charitable gift annuity with her favorite charity. Will Marla benefit from the charitable deduction?
Marla has two choices. She can either take the standard deduction when she files her tax return or she can itemize. The standard deduction for a single person is now $12,000. Marla would be better off itemizing if her total deduction exceeds that amount. Marla can deduct her state and local income taxes and the property taxes for her condominium. These taxes total $6,600, which is less than the $10,000 cap on state and local taxes, so Marla can deduct the full amount.
So far, Marla’s available deductions total less than the standard deduction. However, if Marla funds the gift annuity, she could take a charitable deduction of $8,547. Taken together, Marla’s deductions for state and local taxes, property taxes and the charitable deduction exceed the $12,000 standard deduction. Marla would be better off itemizing in the year she funds the gift annuity, as this would save her approximately $650 in taxes. As you can see, even a modest planned gift can be reason enough for a non-itemizing donor who normally has few deductions to itemize.
The new law does not change the capital gains tax rates. For donors, this presents a special opportunity. Donors will benefit from funding a charitable gift annuity or a charitable remainder trust with appreciated property because of the potential bypass of capital gains. Even nonitemizers can benefit from capital gains savings for gifts of appreciated assets.
For donors who do not itemize, there are two ways you can give and still receive tax benefits. The first is the Charitable IRA Rollover, where a donor (age 70 1/2 or older) can make a gift of up to $100,000 from his or her IRA this year. You do not have to claim the distribution as income, and the gift counts against the required minimum distribution for the year. A donor who makes this gift is not entitled to take a charitable income tax deduction. However, this gift provides a nice tax benefit because it helps reduce income by avoiding the personal distribution.
The second way a nonitemizer can give and receive tax benefits is with gifts that provide payments or income to donors or others, such as a charitable gift annuity (CGA).
You can fund a CGA, receive lifetime payments in return, and benefit charity with what money is left after all annuity payments have been paid. If you use an appreciated asset (such as stocks) to fund a CGA, you will avoid capital gains tax on the gift portion. You will also defer recognizing the remaining capital gain on the appreciation until each annuity payment is made, thus deferring your tax consequences.
Excerpted with permission from: Planned Giving Today, May 2018, Volume 29, Number 5
The CMH Foundation is currently working with many donors, like you, who want to leave a legacy to express their values beyond their lifetimes. Many of the ways to do so are tax-friendly, easy to do and ensure that your family is taken care of. Email email@example.com or call 503-325-3208 for your free estate planning starter guide!
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