Charitable Deduction Not Taken Down by the Fiscal Cliff
The charitable deduction was left mostly unscathed by the fiscal cliff negotiations and the recently passed bill.
Although various media sources referenced a "cap on itemized deductions for individuals with incomes above $250,000 and household income over $300,000," what was actually included in the bill was a reinstatement of the Pease limitation for those taxpayers exceeding those thresholds, not an actual cap on itemized deductions.
Under the Pease amendment, income over the applicable amount will trigger an itemized deduction (including the charitable deduction) limitation that is the lesser of (a) 3% of the adjusted gross income above the applicable amount, or (b) 80% of the amount of the itemized deductions otherwise allowable for the taxable year.
The 2001 tax act eliminated the limitation for 2010, so that all taxpayers got the full value of their itemized deductions that year, and reduced the Pease limitation by one-third in 2006 and 2007, and by two-thirds in 2008 and 2009, before repealing it entirely for 2010.
Although it impacts itemized deductions, it is not a direct cap on itemized deductions, as is found in the President Obama and Governor Romney deduction proposals.
However, AFP anticipates that itemized deductions, including the charitable deduction, will be back on the table during the upcoming tax reform and deficit reduction negotiations. And it is possible that the President’s Fiscal Year 2014 Budget will once again include his proposed 28 percent cap on itemized deductions for high-income taxpayers. We still have a lot of work ahead of us, and AFP continues to work with the Charitable Giving Coalition on this important issue.
IRA Rollover Provision Extended
There was some good news in the final fiscal cliff bill for charities. The tax extenders package, which includes the IRA Rollover provision, was included in the fiscal cliff bill. The IRA Rollover provision permits individuals ages 70½ and older to give direct gifts up to $100,000 to qualified public charities from their Individual Retirement Accounts (IRAs) without tax penalty.
The bill’s language extends the tax deadline to Feb. 1, 2013 for the IRA Rollover provision, meaning that IRA gifts made between Dec. 31, 2012 and Feb. 1, 2013 would be counted for the 2012 tax year. It also allows people who made otherwise qualifying transfers from IRAs to charity in Dec. 2012 to treat the transfers as eligible rollovers.
The extenders package is retroactive to 2012 and sunsets/expires at the end of this year (2013), meaning that we'll be pushing for an extension of the IRA Rollover provision yet again at the end of the year.
A copy of the fiscal cliff bill is available here.
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Senate Working Groups Highlight Charitable Giving Incentives in Tax Reform “Exploration”