One of the most effective and popular income tax planning strategies has been the so-called “IRA Charitable Rollover”, which allowed taxpayers aged 70-1/2 and older to donate up to $100,000 directly from their IRA to one or more eligible charitable organizations. Although no charitable income tax deduction is allowed, the owner of the IRA can exclude from the owner’s taxable income the amount passing to charity, up to $100,000. The amount paid to a charity reduces the taxpayer’s “required minimum distribution” (RMD) from the IRA, which would otherwise be taxable income to the IRA owner. The problem for taxpayers and planners has been that this law initially expired on December 31, 2007 but has been extended by Congress several times – usually in the last weeks of the year. The uncertainty and last minute extension of the law caused many clients to forgo use of the strategy. The good news to be shared with your friends and clients is that the Protecting Americans from Tax Hikes (PATH) Act signed into law on December 18, 2015 makes this special provision permanent.
The donation must pass directly from the IRA to the charitable organization and multiple transfers to one or more charitable organizations during the calendar year are permitted – but only up to $100,000 will be excluded from taxable income in a given year.
The IRA Charitable Rollover is most likely to benefit donors who itemize deductions and whose charitable contributions are reduced by the percentage of income limitation. Non-itemizers could possibly benefit for STATE income tax purposes, depending on the tax law of that particular state. Donors should be encouraged to consult with their professional tax advisors, and of course the firm’s estate planning and tax attorneys are happy to assist.
For more information, please contact Tip Richmond in our Lexington, Ky. office at 859-899-7812.