At Mirus Financial Partners, we understand your desire to support worthy causes while making intelligent financial decisions. Donating property to a qualified charity can be a powerful way to achieve both goals. This article explores how charitable contributions can potentially qualify for a tax deduction.

Qualifying for the Charitable Deduction

Several considerations are involved in ensuring that your gift of property qualifies for a charitable deduction on your tax return.

• Timing is Crucial: The transfer of the property, either during your lifetime or through your will, must be initiated by you. Gifts made by your executor or heirs won't qualify.
• Lifetime vs. Bequest: For lifetime gifts, the tax deduction applies in the year you make the transfer for federal gift tax purposes. If the value of your charitable gifts doesn't exceed the annual exclusion amount, you might not even need to file a gift tax return.
• Donation to a Qualified Charity: Not all organizations are qualified to receive charitable donations. It's crucial to verify the charity's eligibility with the IRS to ensure your deduction is valid. Gifts to individuals or non-qualified organizations, regardless of their need, won't qualify.

Beyond the basic requirements, here are some additional restrictions to keep in mind:

• U.S. Citizenship or Residency: You must be a U.S. citizen or resident at the time you make the gift.
• Unrestricted Use or Possession: You must have had unrestricted ownership of the property, including the right to use or possess it, or receive income from it, before donating it. Gifts of "future interests" in property, where access or benefit comes later, don't qualify.
• Partial Interest Gifts: If you're dividing ownership rights between a charitable and non-charitable entity (e.g., a trust paying income to charity with remaining assets going to family), the deduction might still be possible. However, the property must be transferred to a specific IRS-approved form of charitable trust, such as a charitable lead trust, charitable remainder trust, or pooled income fund.
• Deduction Limits: The amount of your charitable deduction is generally limited to the fair market value of the transferred property at the time of donation. Exceptions may apply in certain situations.

Charitable IRA Rollover Gifts

For individuals over 70 ½ years old, there's an opportunity to reduce their tax burden through charitable IRA rollovers. Here's how it works:

• Direct Transfer: The charitable contribution must be made directly from your IRA to the qualified charity.
• Annual Limits: The maximum annual contribution is $100,000 per individual and applies to both spouses if filing jointly.
• Distribution Flexibility: The $100,000 limit can be divided among multiple charities as long as the total doesn't exceed the limit.
• Restrictions: Charitable IRA rollovers cannot be used to fund certain types of charitable vehicles, such as gift annuities, charitable remainder trusts, private foundations, donor-advised funds, or supporting organizations.

Charitable Rollover Gift Annuity

Under a new law effective in 2023, some donors can make a Qualified Charitable Distribution (QCD) in exchange for a charitable gift annuity. There are some rules and limitations:

• You can exercise this option over a single calendar year and only once during your lifetime.
• There is an aggregate limit of $53,000 for 2024.
• The entire payment you receive from your charitable gift annuity will be subject to income tax.
• You can include your spouse as a recipient of the annuity payment.
• While there is no income tax deduction for this contribution, there is no tax on the QCD either.

Example

Consider Alan, a 75-year-old who would like to make a special contribution to support the American Red Cross. Alan has an IRA and knows that he is facing a Required Minimum Distribution (RMD) this year. Instead, Alan chooses to make a $53,000 QCD to the American Cancer Society in exchange for a charitable gift annuity, which will pay him $3,710 (7 percent) per year for the rest of his lifetime. Alan understands that he is allowed to make this election only one time, but he is looking forward to securing a stream of payments for his lifetime, meeting or reducing his RMD for the year, and making a generous contribution to the American Cancer Society.

Understanding the Complexities

The interplay between charitable giving and tax benefits can be intricate. There are various exceptions and limitations to consider. To explore if donating property aligns with your financial goals and offers potential tax advantages, we encourage you to contact Mark Vergenes at Mirus Financial Partners. Together, we can assess your individual circumstances and determine if this strategy makes sense for you.

By working with Mirus Financial Partners, you can make a meaningful impact on a cause you care about while potentially reducing your tax burden. Contact us today to learn more.