Important Tax Changes: IRA Rollover and Charitable Deduction

Jan. 11, 2013

Congress started the New Year by passing the American Taxpayer Relief Act of 2012 on January 2 in a deal to avert the fiscal cliff. The new law gives taxpayers and donors some certainty moving forward for charitable giving and gift planning. 


Below are highlights of changes that will affect charitable giving in 2013.

The federal IRA charitable rollover is back for 2012 and 2013.

Called the IRA Charitable Rollover, donors age 70||special189|| or older are once again eligible to move up to $100,000 from their IRAs directly to qualified charities without having to pay federal income taxes on the money.

As an Iowa taxpayer taking advantage of the IRA charitable rollover, you are also eligible to receive Endow Iowa Tax Credits, a 25 percent Iowa tax credit in addition to normal federal charitable income tax deductions for certain charitable gifts. These tax credits are only available through Iowa community foundations.
 
The Iowa State House and Senate have approved the "coupling" of the federal legislation that allows United States taxpayers ages 70||special189|| and older to donate IRA assets directly to charity. This means that donors will not need to claim the funds as income or incur any federal or state income tax.  Note that you may not roll over a distribution to a Donor Advised Fund. You can establish or give to a fund designated to support a specific favorite charity.

 

The Council on Foundations has provided us detailed information to clarify additional questions you may have about IRA Rollover provisions. Learn more.

Pease Limitation on Itemized Deductions

The Pease Limitation on Itemized Deductions, enacted in 1991 and named after the provision's author, former Rep. Donald Pease (D-Ohio), requires higher-income taxpayers to reduce the total amount of most itemized deductions, including any charitable deductions, by the lesser of (1) 3 percent of adjusted gross income (AGI) above a specified income threshold or (2) 80 percent of the filer's itemized deductions.  Learn more about the Pease Limitation.


Estate and gift tax exemptions are retained.
The estate tax will have a $10 million exemption for couples, $5 million for individuals and a top tax rate of 40 percent.
 
No cap on charitable deductions
The charitable deduction will continue to be coupled with an individual's or household's corresponding tax rate. In other words, there is no cap on charitable deductions.

Please contact us with any questions specific to your giving situation or fund.