The Tax Cuts and Jobs Act overhauled the tax system and you may be wondering how this could affect your giving. Outlined below are the main tax rules that impact charitable giving. We recommend you talk with a tax advisor about how this may affect your situation.
Charitable deduction maintained
Taxpayers who itemize their deductions will still be able to deduct donations to qualified charitable organizations.
Increased limitation for cash charitable contributions
Through 2017, taxpayers could deduct the full amount of their cash contributions to charity as long as the deduction did not exceed 50% of their adjusted gross income (AGI). The new tax law increases the AGI limit on cash donations to 60%.
Rules limiting the deduction amount for donated appreciated assets to 30% of AGI remain in place. Any contributions exceeding the AGI limits can be carried forward and applied over the next five years.
Carry forward rules maintained
The carry forward rules pertain to the limit on charitable contributions of cash that can be deducted in a single year, which the new tax law increased to 60% of AGI. The carry forward rules allow donors who contribute more than 60% of AGI in a single year to carry forward the excess part of the gift as a deduction for the next five years.
Increased the standard deduction
The standard deduction will increase to $12,000 for individuals and $24,000 for married couples filing jointly. This nearly doubles the standard deduction, which in 2017 was $6,350 for individuals and $12,700 for married couples filing jointly.
Reduced tax rates
The new tax law maintains seven tax brackets, but tweaks the income thresholds and lowers rates for most brackets.
Limited state and local tax (SALT) deductions
Until 2017, taxpayers were able to claim state and local income, sales, and property taxes as a deduction on their federal returns. The new tax law maintains this deduction, but caps it at $10,000.
Maintained the capital gains tax rate
The long-term capital gains rates remain in place in the new tax law. Capital gains are a form of income reported on the 1040 and factored into a taxpayer’s AGI. Taxpayers are subject to pay capital gains tax when selling appreciated securities held for over a year. The capital gains tax rate continues to be 20% and the Medicare surtax rate of 3.8% also remains, resulting in a 23.8% tax on capital gains.
Increased federal estate tax threshold
The law doubled the federal estate and gift tax threshold to $11M for individuals and $22M for married couples filing jointly. Until 2018, estates were subject to a tax when gross assets surpassed $5.49M for individuals and $10.98M for married couples filing jointly. The increased threshold means that fewer families will be subject to an estate tax.
Repealed the Pease limitation
The new law removed the Pease limitation from the tax code. The Pease limitation was an overall reduction on itemized deductions for higher-income taxpayers. The rule reduced the value of a taxpayer’s itemized deductions by 3% of AGI over a certain threshold. The 3% reduction continued until it phased out 80% of the value of the taxpayer’s itemized deductions.
Cut corporate tax rate
The law lowered the corporate tax rate from 35% to 21% beginning in 2018.
Biblical Stewardship Services
Christian Aid Ministries Foundation provides free services to educate, motivate, and assist our supporters in Biblical stewardship planning. We offer charitable gift annuities, donor advised funds, bequest services, will and trust information, estate design services, and seminars.