Here’s how federal tax changes could affect itemized deductions and gift planning.

Donors give to the Maine Community Foundation for many reasons – supporting our mission to improve the quality of life for all Maine people, making a positive impact in their community, leaving a legacy, and/or involving family in their giving. And sometimes, when it comes to the timing and the amount of the gift, decisions may also be driven by tax policy.

Provisions of federal tax legislation signed into law last December may be relevant to your philanthropy. Here are some highlights:

  • Reduction of most individual income tax rates.
  • Repeal of the personal exemption. A personal exemption for taxpayer and dependents no longer exists.
  • Increase in the standard deduction. The standard deduction has increased from $6,500 to $12,000 for single filers, and from $13,000 to $24,000 for taxpayers who are married and fling
  • Itemized deductions.
    • Charitable deduction for cash gifts to a public charity increased from 50 percent to 60 percent of adjusted gross income.
    • Charitable deduction for stock and real estate gifts to a public charity remains at 30 percent of adjusted gross income.
    • State and local tax deduction is capped at $10,000 for all state and local income and property taxes.
    • Mortgage interest deduction is retained with the limit on deductible new home mortgage debt capped at $750,000 for purchases after December 17, 2017. Mortgages that existed prior to this date are grandfathered. Home equity loans can no longer be deducted after December 31, 2017.
    • Most miscellaneous deductions are no longer allowed, including tax preparation fees, moving expenses, and investment management fees.
    • The Pease limitation has been repealed, no longer reducing itemized deductions for high-income earners.

  • Increase in the gift tax, estate tax, and generations skipping tax exemptions. The exemption after indexing for inflation is expected to increase from $5.49 million in 2017 to $11.2 million per person in 2018.

The new tax provisions for individual filers will expire at the end of 2025, then revert to 2017 provisions – unless Congress acts to make them permanent or otherwise extend them.

Two of these changes cause some concern for nonprofits: the standard deduction increase combined with the reduction of most allowable itemized deductions, and doubling of the estate-tax exemption.

The staff at MaineCF is ready to work with you to ensure your gifts are as meaningful and tax-efficient as possible. Here are some giving options to consider with your professional advisor as you evaluate how the new tax laws may affect you:

  • Create a donor-advised fund (DAF) or add to your DAF. If you have the financial ability to make a single contribution to a DAF in an amount equal to several years of your anticipated charitable gifts, you can then make grant recommendations to your favorite charities anytime you choose. Front-loading a larger charitable gift in one year, or “bundling gifts,” can help you increase your itemized deduction to exceed the standard deduction and maximize your deduction in a given year.
  • Make gifts of appreciated stock or real estate. By making a gift of appreciated stock or real estate, you can exclude the appreciation from your taxable income and could receive a double benefit if you have enough deductions to itemize in the year you make the gift.
  • Make your gift with an IRA Qualified Charitable Distribution (QCD). If you are older than 70½, you can gift up to $100,000 annually directly from your IRA to a qualified charity. A QCD cannot be made to a DAF, but can be made to any other type of fund at MaineCF. When the Internal Revenue Code requirements are met, the gift amount counts toward your required minimum distribution and is excluded from your taxable income.

We’re here to help. If you would like to learn more about these options or would like us on your team to review your personal giving strategies, please contact Jennifer Richard, director of gift planning, at (207) 761-2440 or jrichard@mainecf.org.

Photo: Chris Potter/Flickr