New Tax bill and Year-end Donor Strategies
The U.S. House and Senate passed the tax bill and President Trump signed it into law on December 20, 2017. While the bill was in conference committee there were a number of changes, including some pertaining to charitable gifts. The Commemorative Air Force has identified several items that are likely to be of most interest to donors.
The items below will take effect in January 2018. Currently, they are all set to expire at the end of 2025. Unless Congress acts before then to extend the provisions or make them permanent, they will be replaced by current law starting in 2026. (Note: provisions related to business taxes do not have an expiration date.)
Provisions of note for charitable planning purposes 2018 through 2025:
- The charitable deduction will be retained. Most other itemized deductions will be eliminated. Two that will remain:
- State and local taxes can be deducted in any combination up to an annual limit of $10,000. Currently, there is no limit on the deduction for non-business state and local taxes.
- Mortgage interest on up to $750,000 of debt for married couples filing jointly (MFJ), a decrease from the current $1 million limit.
- An increase in the adjusted gross income (AGI) limitation on charitable gifts of cash (checks, credit cards) to public charities from 50% of AGI to 60% of AGI. The AGI limitation on charitable gifts of appreciated property to public charities will remain at 30%of AGI. Donors who itemize will continue to be able to carry forward deductions subject to either limitation for up to five years.
- A substantially increased standard deduction - $12,000 for singles, $24,000 for MFJ, and $18,000 for heads of households - and repeal of the personal exemption.
- Repeal of the Pease limitation, which under current law phases out up to 80% of itemized deductions for high income taxpayers.
- New and generally lower individual tax brackets, as expressed in percentages: 10, 12, 22, 24, 32, 35, and 37%. The 37% bracket will apply to MFJ with taxable income over $600,000 and single filers and heads of households with taxable income over $500,000. The thresholds for the brackets will be indexed for inflation starting in 2019.
- The alternative minimum tax will be retained for individuals, but with higher exemption amounts and higher exemption amount phase-out thresholds.
- The gift tax, estate tax, and generation skipping tax will continue. However, the exemption amounts for each of these taxes will double to $11.2 million per individual, ($22.4 million for gift and estate tax for married couples).
- Repeal of the 80% charitable deduction for gifts made in exchange for college athletic event seating rights.
Strategies to maximize charitable tax benefits now*:
- The existing tax law is in effect for your 2017 taxes. You may be able to use it to mitigate some consequences with respect to 2018 donations.
- The new standard deduction threshold going into effect in 2018 will mean that some donors may not be able to itemize their anticipated 2018 charitable gifts on that year’s tax return. Clustering your gifts in 2017 may allow their deductibility on this year’s return.
- Gifts made in 2017 of appreciated stock, mutual funds or bonds (held longer than 12 months) can receive a charitable deduction of the full market value, regardless of how much you paid or when they were acquired. You can still select the security having the lowest basis.
- If you are age 70 and ½ or older and have yet to take your individual retirement account’s required minimum distribution, arranging for the IRA administrator to make a direct distribution to the CAF may lower your 2017 taxable income.
Reminder for 2017 gifts
Actions to make certain charitable gifts (such as stocks or from IRAs) must be initiated in a timely manner for our receipt by December 31, 2017. Donations made by check have to be postmarked on or before December 31, and donations via the CAF’s website here must be made by December 31, 2017 at 11:59 p.m.
Thank you for your loyal support. If you have questions or want additional information on making donations to the Commemorative Air Force, contact Floyd Houdyshell, Secretary/Treasurer (email@example.com or (214) 330-1700, x 109) or RozeLyn Beck, V.P., Philanthropy and Development (rbeck@cafhq,org or (214) 330-1700, x103)
* Disclaimer: The Commemorative Air Force (CAF) is not engaged in rendering tax or legal advice. Please consult your tax advisor for specific advice related to your individual situation.