JACKSONVILLE, Fla. (BP)–On Sept. 23, President Bush signed legislation that lifts the 50 percent of Adjusted Gross Income (AGI) limitation on charitable deductions for 2005 federal income taxes. For gifts of cash made to a public charity between Aug. 28 and Dec. 31, the deduction limit is raised to 100 percent. Churches and ministries affiliated with the Southern Baptist Convention and state conventions are public charities.
This window of opportunity creates possibilities for giving to ministry that are not normally available. For example, a person with an AGI of $50,000 who wants to give a large gift to his or her church, and who is over the age of 59 1/2, can now withdraw $100,000 from an IRA, 401(k) or other tax-deferred assets and make a tax-free gift. The $100,000 must be claimed as income, but will be fully deductible. If this person tithed at 10 percent, the deduction against AGI would be $105,000 for 2005. In any other year the deduction would be 50 percent of AGI, or $75,000 (half of $150,000). That is an extra $30,000 deduction for the year 2005.
Perhaps a husband and wife have been thinking about downsizing. If they sell their home this year and give a large gift to their church, the entire amount will be deductible against their income. If their income is $100,000 and they give $100,000 from the sale, their income tax for 2005 is zero. Capital gains will not apply since the homestead was sold and homestead property is exempt from capital gains tax unless the gain exceeds $500,000 (for a married couple, $250,000 for singles.)
Suppose a person with an adjusted gross income of $200,000 has already given $50,000 and wants to give more by year-end. That person can make a cash contribution of $150,000 before Dec. 31 and have no income taxes for 2005.
To have the extra cash to give to a ministry, a person may consider selling some stock. Doing so will incur the 15 percent capital gain on the sale, but if the gift equals 100 percent of AGI, no income tax will be due in 2005.
If you have been thinking about making a major cash contribution to your church, the Southern Baptist Convention and state convention or other ministries affiliated with the SBC and your state convention, 2005 may be the year to do so. The full 100 percent deduction against income is unprecedented.
If you are considering making a gift under the new legislation, consult your CPA or tax advisor to run the numbers before doing so.
Brenda McCollum is director of the Office of Strategic Endowed Giving of the Florida Baptist Convention.
NOTICE: In compliance with requirements imposed by IRS Circular 230, please be advised that any tax advice contained in this article is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code or (ii) promoting, marketing or recommending to another party any transaction or other matter addressed herein.