Feb 2018 AFR: 2.8%
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Will Planned Giving Donors Still Itemize Under the New Tax Law? YES!

If you are a planned gifts fundraiser, or hope to capture planned gifts for your organization, you have no doubt heard concerns about the impact the new tax law will have on charitable giving.  The new tax law doubles the standard deduction to $12,000 for individuals and $24,000 for married couples.

You might be wondering, will donors who make planned gifts still itemize?  The good news is that the new tax law retains itemized deductions for charitable gifts, mortgage interest and state and local taxes, including property taxes (state and local tax deductions are now limited to $10,000).  In almost every case, donors who make planned gifts (and may or may not take other deductions) will be entitled to itemized deductions that will exceed the standard deduction.

Consider these scenarios:

Scenario 1 – The deduction for a planned gift is a donor’s only itemized deduction

1.  A donor funds a charitable gift annuity with $50,000 in cash or assets (the average size for a CGA according to ACGA’s most recent released study). In most cases the deduction for this gift will exceed the standard deduction (for married and single taxpayers). The donor (and married couple donors) will likely itemize.

2.  A donor funds a charitable remainder trust with $100,000 in cash or assets (the minimum gift amount for most charities).  The deduction (which usually is 25% to 40% of the gift amount) will definitely exceed the standard deduction.  The donor (and married couple donors) will itemize.

3.  A donor makes a gift of real estate or property outright, for a life estate or CRT.  The deduction for a real estate gift will almost always exceed the standard deduction. The donor (and married couple donors) will itemize.

Scenario 2 – A donor has a mortgage, and takes a deduction for the interest, and makes a planned gift.  In virtually every case the donor (and married couple donors) will itemize.

Scenario 3 – The donor who makes a planned gift lives in a state where they will pay and then deduct state income (or sales) tax and property taxes. In most cases, the deduction for the donor’s planned gift coupled with up to $10,000 in deduction for state taxes will exceed the standard deduction.  The donor (and married couple donors) will itemize.

When will a planned giving donor take the standard deduction?

The most likely scenario is a donor who lives in a retirement facility and sets up a modest gift annuity ($10,000 is the minimum annuity funding amount for many charities). Depending on the donor’s age and other factors, the deduction could be $5,000 to $7,000.  The donor will not likely take deductions for mortgage interest and may pay little or no state income tax. The donor (and married couple donors in this situation) will take the standard deduction.  Similarly, a bequest donor without other deductions will take the standard deduction.

The other profile that might not take a deduction is a donor who is age 70½ or older and makes an IRA charitable rollover gift. Once again, this donor may not take deductions for mortgage interest and state taxes.  Even if a donor does not itemize, the good news is that he or she may benefit from an IRA rollover gift, since the gift fulfills the IRA required minimum distribution.  Therefore, the IRA rollover may lower their income and taxes.  You should make sure to let your donors know, the IRA rollover effectively operates as a universal deduction (meaning an above the line deduction) for all eligible taxpayers.

Check out our next issue for marketing messages that work under the new tax law – including ideas for reaching your donors who are itemizers, non-itemizers and those without taxable estates.

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About Kristen Schultz Jaarda, JD, LLM

Kristen Schultz Jaarda

Kristen Schultz Jaarda is Executive Vice President of Crescendo Interactive, Inc. She specializes in charitable tax planning and online marketing for planned gifts. She is responsible for client education and leads Crescendo's marketing services and support team. She is a nationally recognized speaker, conducts seminars nationwide and is a principal faculty member of GiftCollege.

Kristen serves as a board member for the American Council on Gift Annuities (ACGA) and as a member of the ACGA Rates and State Regulations Committees, Editorial Advisory Board member for Planned Giving Today, Committee Member for the ABA Charitable Planning and Organization's Group, past Legislative Chair and a board member for the Partnership for Philanthropic Planning of Greater Los Angeles (PPP-LA), a member of the Ventura County Planned Giving Council and a committee member and volunteer for several California charities. She writes weekly for CrescendoTweet and her planned giving blog.

Previously, Kristen served as Counsel to the Assistant Secretary of Education in Washington, D.C. and was Oversight Counsel to the U.S. House Committee on the Judiciary. Prior to that, she worked in a public affairs law practice. Kristen graduated from UCLA School of Law where she was Law Review Editor. She completed her Tax LL.M. with honors at Loyola School of Law. Kristen is a member of the California State Bar, D.C. Bar and the Maryland State Bar.

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