Thomas&Libowitz a professional association

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Good News: year-end tax legislation increases the 2018 contribution limits for cash gifts to public charities and private foundations.

Generally, income tax deductions for charitable gifts remained unchanged under the new tax law.  There was one notable positive twist for charity.  The recently passed tax act allows for an increase in deductibility for gifts of cash (and only cash) to public charities and private foundations (“charities”).  This increase should give charities reason to celebrate.  Prior law limited the deductibility of cash gifts to 50% of a taxpayer’s contribution base, with a five year carry forward on the unused deduction.  The new tax law allows for a 60% ceiling for the next ten years, with the same five year carry forward.  Calculating the contribution base can be complicated, but for most taxpayers it is synonymous to their adjusted gross income.

In the rush to utilize expiring income tax deductions prior December 31, 2017, the client’s knee jerk reaction was utilize deductions were ever available.  This included prepayment of real property taxes and charitable gifting.  However, a large charitable gift of cash in 2017 was not necessarily advisable.  We advised our clients to hold back on substantial gifts of cash to their private foundations [gifts which exceeded the 50% contribution base limitation in 2017] for two reasons.  First, the new law allows for the higher 60% ceiling on gifts of cash (retaining the five year carry forward) and second, the loss of other deductions in 2018 can be offset with a larger charitable gift.

If you made a substantial gift of cash to charity in 2017, good for you.  But, you certainly haven’t lost momentum if you did not.  There are parts of the new tax law that are beneficial, this is one of them.  A copy of the newly enacted Section 170(g) is included below in the text of the entire Internal Revenue Code Section 170, a hyperlink which is provided.

(G) Increased limitation for cash contributions.

(i) In general. In the case of any contribution of cash to an organization described in subparagraph (A) , the total amount of such contributions which may be taken into account under subsection (a) for any taxable year beginning after December 31, 2017, and before January 1, 2026, shall not exceed 60 percent of the taxpayer’s contribution base for such year.

(ii) Carryover. If the aggregate amount of contributions described in clause (i) exceeds the applicable limitation under clause (i) for any taxable year described in such clause, such excess shall be treated (in a manner consistent with the rules of subsection (d)(1) ) as a charitable contribution to which clause (i) applies in each of the 5 succeeding years in order of time.

(iii) Coordination with subparagraphs (A) and (B) .

(I) In general. Contributions taken into account under this subparagraph shall not be taken into account under subparagraph (A) .

(II) Limitation reduction. For each taxable year described in clause (i), and each taxable year to which any contribution under this subparagraph is carried over under clause (ii) , subparagraph (A) shall be applied by reducing (but not below zero) the contribution limitation allowed for the taxable year under such subparagraph by the aggregate contributions allowed under this subparagraph for such taxable year, and subparagraph (B) shall be applied by treating any reference to subparagraph (A) as a reference to both subparagraph (A) and this subparagraph.

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