United States

The new charitable giving limit may not be as giving as first thought

There’s a ‘cash only’ string attached to that 60 percent limit

TAX ALERT  | 

One of the more welcomed changes made by the Tax Cut and Jobs Act (TCJA) was to increase the adjusted gross income (AGI) limit for the deductibility of charitable gifts of cash made to public charities from 50 percent of AGI to 60 percent for years 2018-2025. This change, contained in section 170(b)(1)(G)(i), would allow charitable donors who make significant gifts of cash to qualifying charities (50 percent charities) to deduct more of the value of the gift from their income. Qualifying charities for this purpose are ‘public’ charities and do not include private foundations.

Not long after the TCJA was enacted, planners noted that under section 170(b)(1)(G)(iii), the 60 percent limit will actually be reduced to 50 percent when the taxpayer also donates any non-cash property to any type of charity, whether public or private, or when the taxpayer gives cash to a private foundation. In other words, in order to qualify for the 60 percent of AGI limit for cash gifts to public charities, the donor must not make any gifts of any type to a private foundation and must not make any gifts of non-cash property to a public charity. What’s more, donors who have charitable contribution deduction carryovers from prior years could also be impacted by this reduction.

This will restrict the donor from donating any personal property, such as household goods or clothing, or assets such as stocks and bonds, in a year in which the donor would be counting on the 60 percent AGI limit to maximize the current year’s deduction. While at first blush the impact of this provision might appear to be confined to major donors, there are any number of planning scenarios in which donors who make large cash donations to one or more charities every year also make even larger gifts of stock or other assets to such charitable recipients as donor advised funds and charitable remainder or lead trusts. These donors may be trying to take advantage of the inherent benefits of donating appreciated stock versus selling the stock and donating the cash. Or, they may be using a charitable remainder trust to diversify an appreciated holding in a way that affords them a deduction for a portion of the value of the asset and deferral of the capital gain when the trust sells the asset and reinvests in a diversified portfolio.

Various groups have brought this conundrum to the attention of Congress. The AICPA, for example, sent a comment letter to select members of the Senate Finance Committee and House Committee on Ways and Means addressing this point on Feb. 22, 2018. The AICPA proposes a technical correction that would amend that section to function as (presumably) intended, i.e., to enable donors to take advantage of the 60 percent of AGI limit for cash gifts to public charities even if they are also making non-cash gifts or gifts to private foundations that would not qualify for the increased limit.

One can only surmise if and when Congress will address this item and, even if does, how it would be amended. In the meantime, donors who are considering their 2018 gifts (and other strategic planning steps) should work their tax advisors and, where appropriate, their planned giving specialists to construct their giving for utmost advantage under the law as we know it.

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