The Pension Protection Act of 2006 (the "Act") created several new charitable giving options. Those inclined to use the new options will be able to benefit from associated tax benefits.
Direct IRA Distributions:
The Act created a window which allows individuals to make a charitable gift directly from their Individual Retirement Account (IRA). The direct gift is limited to $100,000 per year and allows the donor to avoid recognition of any related taxable income.
The gift requirements are: individual must be age 70 1/2; contribution made directly from an individual retirement plan; and the contribution must be "otherwise" entirely deductible as a charitable contribution (IRC 170). It is important to note that the contribution will be excluded from the income of the IRA owner; taken into account when determining the "minimum retired distribution" for the year; and a charitable deduction may not be taken for the gift. Additional benefits include avoidance of adverse tax consequences (alternative minimum tax, loss of itemized deductions, 50 percent gift deduction limitation, and loss of personal exemptions) associated with treating the gift as a distribution.
The Act creates another window for the deduction of certain partial real estate interests (conservation easements, mineral rights and remainder interest) donated to charity for conservation purposes. The Act increases the charitable deduction limit to 50 percent (from 30 percent) of their adjusted gross income. The excess can be carried over for another five years.
If the donor is a farmer or rancher, the charitable deduction limitation is increased to 100 percent of adjusted gross income. This limitation will only apply if the gift does not place any restriction on the ability to use the property for farming or ranching.
Contributions of Household Goods and Clothing:
The Act limits the charitable deduction for household goods and clothing to those "in good used condition or better." This limitation will not apply to individual items with a value of $500 or more that is supported by an appraisal.
Any gift of money (by cash or check) will be deductible only if it is supported by a bank record or a written acknowledgement from the receiving organization.
Gifts of Fractional Interests:
The Act allows a donor to continue making fractional interest gifts subject to restrictions. The restricts include: (1) the donor owns 100% of the property before making the first gift; (2) subsequent gifts of fractional interests must be valued as if made at the time of the initial gift (eliminating any appreciation in the property); and (3) any tax deduction will be recaptured (with interest) if the recipient does not receive 100 percent of the property by the earlier the donor's death or 10 years after the initial gift.
Marc J. Soss, Esquire is a Lakewood Ranch resident who specializes in estate and tax planning. He practices in Sarasota, Manatee and Hillsborough county. He is also a veteran of both Operation Enduring Freedom and Iraqi Freedom. He can be reached at firstname.lastname@example.org.