New Life for Selected Charitable Contributions

The 2010 Tax Relief Act extended numerous federal tax provisions. Among those are two valuable charitable contribution opportunities for individuals. The IRA qualified charitable contributions provision was extended through 2011. Under this provision, IRA owners who have reached age 70½ are allowed to make annual tax-free distributions of up to $100,000 directly out of their IRAs to charitable organizations.

These donations, called qualified charitable distributions (QCDs), generally do not directly affect the IRA owner’s federal income tax bill because funds go directly to the charity. Additionally, the taxpayer does not need to itemize to benefit from this provision, and the QCDs count as IRA required minimum distributions (RMDs). Therefore, charitably inclined seniors with more IRA money than they need can get a tax break by arranging for tax-free QCDs to take the place of taxable RMDs, and those who do not itemize can effectively get the benefit of the deduction by arranging tax-free QCDs. The QCD break originally expired at the end of 2009 but has been extended through 2011.

Liberalized qualified conservation contribution rules expired at the end of 2009, but were extended through 2011 by the recent 2010 Tax Relief Act. Qualified conservation contributions are charitable donations of real property interests, including remainder interests and easements that restrict the use of real property. For individuals, the maximum write-off for qualified conservation contributions of long-term capital gain property is increased from the normal 30% to 50% of adjusted gross income. For an individual who is a qualified farmer or rancher, the qualified conservation contribution write-off for donated farm or ranch real property can be as much as 100% of the donor’s adjusted gross income. However, the donation must include a usage restriction stating that the property must remain available for agricultural or livestock production. In addition, qualified conservation contributions are not counted when calculating an individual’s allowable write-offs for other charitable contributions.

Qualified conservation contributions in excess of what can be written off in the year of the donation can be carried forward for 15 years (only a five-year carryover period was allowed under the previous rules).