December is an excellent month to consider plans for charitable gifts. These gifts could include an IRA charitable rollover, a gift of cash or a gift of appreciated stock or land.
1. IRA Charitable Rollover — The IRS refers to the IRA charitable rollover as a qualified charitable distribution (QCD). An individual age 70½ or older is permitted to make a transfer directly from his or her IRA custodian to a qualified nonprofit. The transfer is not included in taxable income. If the IRA owner is over age 73, 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 a 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 rollover. The IRA owner must be at least age 70½ and the maximum transfer in 2023 is $100,000 ($105,000 in 2024). The transfer must be to a qualified exempt nonprofit and may be for a designated purpose or field of interest fund. However, it may not be to a donor advised fund or supporting organization. In addition, it may not be for a nonprofit dinner or other event that involves a partial benefit to the donor. The entire QCD must be for a qualified charitable purpose.
2. Gifts of Cash — Individuals who itemize deductions may deduct 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 the 60% of AGI limit is substantial, some generous individuals give more than this and may carry forward and deduct the excess gift amounts during the next five years.
3. Gifts of Stock — With the increased value of many technology stocks in 2023, many donors find that a gift of appreciated stock is attractive. A gift of appreciated stock provides two benefits. A charitable contribution deduction is based on the fair market value of the stock and there is a bypass tax on the capital gain. If a donor purchased stock five years ago for $10,000 and it is now worth $30,000, the donor could pay capital gains tax on $20,000 if the stock is sold. By giving the stock to a nonprofit, a donor receives a deduction for the $30,000 in value and bypasses the tax on the $20,000 of potential gain.
4. Gifts of Land — With substantial increases in value for real property, many donors will find that a gift of appreciated property is attractive. A gift of appreciated land provides two benefits for the donor. First, the donor may receive a charitable contribution deduction for the fair market value of the land. Second, the donor can bypass tax on the capital gain. If the donor purchased development land 10 years ago for $50,000 and it is now worth $250,000, the donor would pay capital gains tax on $200,000 if he or she sold the property. However, by giving the land to a nonprofit, 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 to 30% of adjusted gross income (AGI). If the gift value is in excess of this limit, it may be carried forward for five additional years. For example, Mary Smith has adjusted gross income of $100,000 this year and makes a gift of appreciated land with fair market value of $80,000. She is able to deduct $30,000 this year, carry forward $50,000 and deduct that amount over the following five 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 this year.
