Americans breathed a collective sigh of relief when Congress enacted the American Taxpayer Relief Act of 2012 (“ATRA”) earlier this month, thereby keeping the U.S. from plunging over the “fiscal cliff.” ATRA dealt with a surprising number of issues given the pressure cooker atmosphere in which it was negotiated, although anxiety remains as it failed to resolve some issues — such as sequestration — that will no doubt dominate the news cycle in the months ahead.
In any case, ATRA brings both good and bad news, granting tax relief in some cases and imposing new or increased taxes in others. Last week, Duane Reynolds of our office shared with you the good news that the federal gift and estate tax exemptions in effect at the end of 2012 were made permanent. This week, I’d like to share a little good news for philanthropic and charitable givers:
- Charitable Gifts from IRAs. ATRA reinstates for 2012 and 2013 the tax break that allows individuals age 70 ½ and older to directly transfer up to $100,000, tax free, from their IRAs to charity. If you received a distribution from your IRA in December 2012 and would like to take advantage of this special opportunity, you have until January 31, 2013, to transfer the funds to a qualified charity. You can also treat as a 2012 charitable donation a direct transfer from your IRA to charity this month as long as the funds are transferred by January 31. In both cases, the gifts will count toward your minimum distribution requirements.
- Donations of Land. ATRA also reinstates for 2012 and 2013 special deduction rules for gifts of land donated for conservation purposes. Not only are the write off limits for gifts from individual donors increased from 30% to 50% of adjusted gross income, but contributions in excess of 50% of AGI can be carried forward for 15 years.
- Charitable Benefits for High Earners. ATRA imposes a 39.6% top income tax bracket and a 20% top capital gains tax rate on higher earners. In addition, higher earners will be hit with a new 3.8% Medicare surtax on investment income and a .9% Medicare surtax on earned income. If these additional taxes affect you, perhaps it will give some comfort to know that higher taxes mean a corresponding, higher benefit from charitable giving (offset in part, unfortunately, by new charitable deduction limits particularly affecting very high earners). Nonetheless, 2013 may be a good year to consider setting up a charitable remainder trust or engaging in other special gifting as a part of your tax planning.