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November is an excellent month to consider plans for charitable gifts in 2022. These gifts could include an IRA charitable rollover, a gift of cash or a gift of appreciated land.
1. IRA Charitable Rollover — The IRS refers to the IRA charitable rollover as a qualified charitable distribution (QCD). An individual over age 70½ is permitted to make a transfer directly from his or her IRA custodian to a qualified charity. The transfer is not included in taxable income. If the IRA owner is over age 72, the distribution may fulfill part or all of the required minimum distribution (RMD).
Because many individuals have invested their IRAs in stocks, bonds or other securities, it may be necessary to exchange the IRA stock or bond accounts for an IRA money market fund prior to the distribution. Most custodians require a QCD to be paid from a money market account or similar fund.
There are some limits for the IRA charitable rollover. The IRA owner must be at least age 70½ and the maximum transfer in one year is $100,000. The transfer must be to a qualified exempt charity and may be for a designated purpose or field of interest fund. However, the transfer may not be to a donor advised fund (DAF) or supporting organization (SO). Furthermore, it may not be for a charity dinner or other event that involves a partial benefit to the donor. In addition, the entire QCD must be for a qualified charitable purpose.
2. Gifts of Cash — Individuals who itemize deductions may deduct 2022 gifts of cash up to 60% of their contribution base, which is usually adjusted gross income (AGI). A couple with $100,000 in income may give and deduct up to $60,000 this year. While 60% of AGI limit is substantial, some generous individuals give more than this amount. For gifts that exceed the deduction limit, the IRS permits carry forward of the excess gift amounts over the next five years.
3. Gifts of Land — With substantial increases in value for real property, many donors will find a gift of appreciated property made in 2022 is attractive. A gift of appreciated land provides two benefits for the donor. First, the donor may receive a charitable contribution deduction based on the fair market value of the land. Second, the charity is tax-exempt and able to sell the asset tax free. Therefore, if the donor donates the asset, the donor can bypass tax on the capital gain. For example, if the donor purchased development land ten years ago for $50,000 and the land is now worth $250,000, the donor would pay capital gains tax on $200,000 if he or she sold the property on their own. By giving the land to charity, however, the donor may receive a deduction for the $250,000 in value and bypass the tax on the $200,000 of potential gain. Because the donor is receiving both the deduction and capital gain bypass benefits, this type of charitable deduction is permitted up to 30% of adjusted gross income (AGI). If the gift value exceeds this limit, it may be carried forward for an additional five years. For example, a donor with adjusted gross income of $100,000 this year makes a gift of appreciated land with a fair market value of $80,000. The donor can deduct $30,000 this year. The donor will carry forward and deduct the remaining $50,000 gift value for up to five additional years.
Editor's Note: Many donors make their largest gifts in November or December. This is a good time to plan ahead and consider options for gifts in 2022.