How will the new tax law affect you and your charitable giving?

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2018 strategies regarding the new tax law

(updated Jan. 9, 2018)

The 2017 Tax Act is now signed into law. All items mentioned below have taken effect. However, in order for the bill to comply with the $1.5 trillion deficit limit imposed by Senate rules, the personal changes are 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 the earlier tax laws, starting in 2026. (In contrast, provisions related to business taxes do not have an expiration date.)

Provisions of note for charitable planning purposes 2018 through 2025:

  1. The charitable deduction will be retained. Most other itemized deductions will be eliminated. Two that will remain:
    • State and local taxes, including property taxes, can be deducted in any combination up to an annual limit of $10,000. 
    • Mortgage interest on up to $750,000 of debt for married couples filing jointly (MFJ), applicable for up to two homes but no longer for home equity loans.
  2. An increase in the adjusted gross income (AGI) limitation on charitable gifts of cash (checks, credit cards) to public charities from 50 percent of AGI to 60 percent of AGI. The AGI limitation on charitable gifts of appreciated property to public charities remains 30 percent of AGI. Donors who itemize will continue to be able to carry forward deductions subject to either limitation for up to five years.
  3. 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. The child credit has increased to $2,000 for children under the age of 17, phasing out at higher income.
  4. Repeal of the Pease limitation, which under past law phased out up to 80 percent of itemized deductions for high income taxpayers.
  5. New and generally lower individual tax brackets, as expressed in percentages: 10, 12, 22, 24, 32, 35, and 37 percent. The 37 percent 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.
  6. The alternative minimum tax will be retained for individuals, but with higher exemption amounts and higher exemption amount phase-out thresholds.
  7. The gift tax, estate tax, and generation skipping taxes continue. However, the exemption amounts for each of these taxes will double to $11.2 million per individual and $22.4 million for married couples.
  8. Repeal of the 80 percent charitable deduction for gifts made in exchange for college athletic event seating rights.
  9. For donors whose tax domicile is in one of the 36 states that permit the tax deductibility or credit for contributions to tax sheltered 529 college savings plans, the new law now allows their use for private K-12 schools and also establishes a 529 ABLE fund to help blind or disabled persons under the age of 26.

Strategies to maximize charitable tax benefits 2018 through 2025*:

  • The new standard deduction threshold now in effect may mean it can be more effective to bunch charitable gifts in one particular tax year for donors to maximize their ability to take the charitable deduction for that year.
  • Gifts made of appreciated stock, mutual funds or bonds (held longer than 12 months) can still receive a charitable deduction of the full market value, regardless of how much was paid or when the security was acquired. Donors have the ability to select the security having the lowest basis (this was at risk of being eliminated).
  • Donors age 70 and 1/2 or older who hold an individual retirement account (IRA) can arrange to transfer all or a portion of the IRA’s required minimum distribution directly to the USAFA Endowment. This lowers their taxable income, which may be advantageous if they do not qualify to take a charitable deduction due to the higher standard deduction.

 

Thank you for your loyal support. If you have questions or want additional information on how to make tax-wise contributions benefitting our Air Force Academy, contact Dale Zschoche at the USAFA Endowment: 719-238-7510 or dale.zschoche@usafaendowment.org.

* Disclaimer: The USAFA Endowment is not engaged in rendering tax or legal advice. For counsel or assistance in specific cases, the services of trusted professional advisor(s) should be obtained.