The Sharpe Group Whitepaper 2010 Tax Law Changes – Impact on Giving

Thanks to The Sharpe Group, nonprofit development executives, volunteers and donors have a clearer picture of what the 2010 tax laws mean to charitable giving. You can download a full copy of the report here. Highlights from the whitepaper:

IRA Rollover Gifts

The portion of the law with perhaps the most immediate impact on charitable giving is the extension of the ability for those over 70 ½ to make tax favored gifts to charity directly from a traditional or Roth IRA. Unlike many of the other components of the bill, however, the IRA gift provision is only extended for gifts completed by the end of 2011. Fortunately, however, it also provides retroactive benefits for gifts made in 2010. Because of the short time remaining to take advantage of this incentive for 2010, Congress has provided that donors can elect that transfers completed by January 31, 2011 be deemed made in 2010 for tax purposes, and those gifts will count toward the donor’s 2010 minimum withdrawal requirements. Because of the retroactive extension of this benefit to 2010, it will be possible for some married couples, if they act quickly, to give up to $200,000 each from their IRAs, for a total of $400,000. This opens an opportunity in some cases for accelerated payments on pledges that have been made by persons in the affected age and wealth category.

Other Gifts Fully Deductible

There is also good news for those making traditional gifts of cash and other property whether outright or to fund charitable trusts, gift annuities or other planned gifts. The impact of a provision known as the “Pease Amendment,” enacted in 1991, that had been gradually phased out in recent years was scheduled to be reinstated in 2011. This would have required higher income taxpayers to reduce their itemized deductions (including charitable gifts) by 3% of the amount by which their adjusted gross income (AGI) exceeded certain amounts. The legislation provides that the return of this reduction rule be delayed until January 1, 2013.

Estate and Gift Tax Changes

The administration proposed extending the 2009 law allowing a $3.5 million per person exemption for gifts at death and a $1 million exemption for gifts completed during lifetime. The maximum tax rate would have continued at 45%. In the final compromise, Congress decided to increase the amount each person could leave to non-charitable heirs to $5 million per person, or $10 million for a married couple. Another major change is the “reunification” of the gift and estate tax systems. Since 2002, the federal gift and estate tax changes have been “decoupled.” This meant that the $1 million exemption for amounts one could give to heirs during lifetime has been significantly less than the amount that could be left at death, some $3.5 million in 2009. Under the new law, the two systems are brought back into alignment and it is possible to give up to $5 million during lifetime or at death. The research thus suggests that charitable bequests may continue at prior levels, or even increase, with lower estate taxes.
Those who work in the field of gift planning know that the vast majority of charitable bequests traditionally come from those who for many years have been free from concerns about taxes on their estates.

The full report is available here. You can access a number of useful  research reports here.

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