March 9, 2016
Authored by: Stephanie Moll
The Department of the Treasury has released the Treasury Green Book for Fiscal Year 2017, which provides explanations of the President’s budget proposals. One such proposal (remember…these are just proposals, not actual changes in the law) that may affect your estate planning, if passed, is found on page 252 of the Green Book and is re-printed here for your convenience:
CONSOLIDATE CONTRIBUTION LIMITATIONS FOR CHARITABLE DEDUCTIONS AND EXTEND THE CARRYFORWARD PERIOD FOR EXCESS CHARITABLE CONTRIBUTION DEDUCTION AMOUNTS
Current law limits the amount of charitable contribution deductions a donor may claim to a share of the donor’s contribution base (the taxpayer’s AGI computed without regard to any net operating loss carryback for the taxable year). An individual taxpayer may generally deduct up to 50 percent of his or her contribution base for contributions of cash to public charities, and up to 30 percent for cash contributions to most private foundations. An individual taxpayer may generally deduct up to 30 percent of his or her contribution base for contributions of appreciated capital gain property to public charities, and up to 20 percent to most private foundations. Finally, an individual taxpayer may deduct up to 20 percent of his or her contribution base for contributions of capital gain property for the use of a charitable organization. Charitable contributions to an organization exceeding these limits may be carried forward to be deducted in the subsequent five years. Contributions for the use of an organization exceeding these limits may not be carried forward. These limitations are applied prior to the overall limitation on itemized deductions (the so-called Pease limitation). Special rules regarding percentage limitations and carry-forward periods apply for qualified conservation contributions.
Reasons for Change
The contribution base limitations generate significant complexity in the tax system. Consolidation of these limitations would ease the burden on both taxpayers and tax administrators and has the potential to improve compliance.
The proposal would simplify this complicated set of rules limiting deductions for charitable contributions by individual taxpayers. Under the proposal, the general contribution base limit would remain at 50 percent for contributions of cash to public charities. For all other contributions (except for qualified conservation contributions), a single deduction limit of 30 percent of the taxpayer’s contribution base would apply, irrespective of the type of property donated, the type of organization receiving the donation, and whether the contribution is to or for the use of the organization. In addition, the proposal would extend the carry-forward period for contributions in excess of these limitations from five to 15 years.
The proposal would be effective for contributions made in taxable years beginning after December 31, 2016.