Beware when considering using “bunching” strategies for your philanthropic contributions this year—not all gift assets receive equal treatment for carryover purposes.
Although the new tax law increases the limitation on cash gifts from 50% of AGI to 60%, the higher standard deduction will mean that fewer taxpayers will itemize on their tax returns this year. Gifts of appreciated assets have not changed and are still limited to 30% AGI. Since charitable income tax deductions may be carried forward for up to five successive tax years including the year of the original gift, there has been some chatter about the strategy of making a larger gift than usual this year and benefiting from the carried over deduction in the next tax year(s).
But there is a caveat emptor to consider as these strategies are developed!
Because of the different limitations on assets, it is possible for a person with an AGI of $150,000 wishing to give $125,000 to their favorite 501c3 nonprofit to see very different results from using cash or long-term appreciated assets.
A charitable gift of $125,000 made with cash should make them eligible for a $90,000 charitable income tax deduction in the year of their gift and they would be allowed to carryover $35,000 into the next tax year.
Using appreciated securities of the same amount, that donor should be eligible for a $45,000 charitable income tax deduction in the year of their gift, carrying forward $80,000 into the next tax year (and possibly up to five successive tax years.)
I made a calculator for the IRS Publication 526 Worksheet 2 if you’d like to discuss a potential charitable gift planning strategy or scenario around this concept.
Looking forward to your comments or ideas,
Thanks, and all the best for the holidays and the new year ahead!
Disclaimer: No legal or tax advice intended. Please consult with your own legal and/or tax advisor about the impact of charitable gift decisions.
A Groton and Wesleyan grad, Pete flew helicopters on active duty in the Navy for six years before embarking on a career in charitable gift planning that has since spanned three decades. As the Gift Planning Director for Groton School, University of Hartford, Virginia Tech, and The Cooper Union from 1994-2018, Pete proposed, negotiated, consulted, or closed on more than $147 million of planned gifts from wealthy individuals. Pete now runs his own consulting practice and enjoys serving small non-profits, connecting them to wealthy prospects in ways they never could before.
A veteran-owned small business that seeks to serve nonprofits of all kinds, and especially those that have limited access to experienced, full-time development staff dedicated to fostering individual donor relationships.
Founder, Peter H. Congleton