How tax law affects charitable giving
Q: I heard that the new tax law changed some of the rules pertaining to charitable giving. Can I still make a tax-free transfer from my IRA to charity and have it count as my required minimum distribution? I’m 75 and I’ve been doing that for the past few years.
A: Yes. The new tax law doesn’t change the rules for qualified charitable distributions, which let people older than 70 1⁄2 transfer up to $100,000 from their IRAs to charity each year, and have it count as their RMD without being added to their adjusted gross income.
The new law also doesn’t change the basic rules for charitable deductions (other than increasing the deduction limit for cash contributions from 50 percent to 60 percent of your adjusted gross income). But because the law nearly doubled the standard deduction, fewer people will itemize deductions — and you can only deduct charitable contributions if you itemize.
Until Congress changed the rules, the 2018 standard deduction was scheduled to be $13,000 for joint filers, $6,500 for single filers and $9,550 for those filing as head of household. But now, the 2018 basic standard deduction will be $24,000 for joint filers, $12,000 for single filers and $18,000 for heads of household.
Taxpayers older than 65 get an even better deal. Each spouse age 65 or older gets an extra $1,300, so if both husband and wife are 65 or older, the standard deduction is $26,600; single taxpayers and heads of household age 65 and older get an extra $1,600, bringing their standard deduction to $13,600 and $19,600, respectively. It makes sense to itemize only if your itemized deductions are larger than that threshold.
Meanwhile, the new law also limits some other itemized deductions that make it even more difficult to cross that threshold. For example, the law caps the itemized deduction for state and local taxes (including property, sales and income taxes) at $10,000.
The deduction for interest paid on home-equity loans and lines of credit is eliminated for both new and existing loans unless the money is used to improve your home. And the mortgageinterest deduction will be limited to interest on the first $750,000 of debt for home loans taken out after Dec. 14, 2017 (interest on up to $1 million in mortgage debt is deductible for loans taken out on or before Dec. 14).
But the tax-free transfer from an IRA lets you benefit from making the gift to the charity even without itemizing. This way, you can still take the standard deduction, but your charitable gift isn’t included in your adjusted gross income and therefore isn’t taxed.