The following fact sheet, provided by the Urban Institute, examines the effects of the American Taxpayer Relief Act of 2012 (ATRA) on charitable giving. The major individual income tax provisions are estimated to increase giving by $3.3 billion or 1.3 percent, relative to 2012 law, mainly because of the increase in the top marginal tax rate. Numerous other smaller provisions will also affect charitable giving.
ATRA makes several changes to the tax code that may affect nonprofits:
- The top tax rate increases from 35 to 39.6 percent on taxable income above $400,000 ($450,000 for couples). Taxpayers who elect to itemize their deductions can continue to deduct charitable contributions at their full marginal income tax rate.1
- The top marginal tax rate on capital gains increases from 15 to 20 percent for taxpayers in the top income tax bracket, increasing the tax benefit for taxpayers that donate appreciated property to charity.
- The overall limitation on itemized deductions (Pease) is reinstated for individuals with adjusted gross income (AGI) above $250,000 ($300,000 for couples). The Pease limitation reduces itemized deductions by 3 percent of the amount by which AGI exceeds the above thresholds, but not more than 80 percent of the total.
- The estate tax is maintained for estates in excess of $5 million ($10 million for couples), indexed since 2010, while the top tax rate increases from 35 percent (in 2012) to 40 percent. This retains some Bush-era estate tax cuts, but not the eventual elimination that was temporarily in place in 2010.
- The charitable IRA rollover provision,2 which allows up to $100,000 in tax-free distributions to certain public charities from an individual retirement account (IRA) held by individuals age 701⁄2 or older, was extended until December 31, 2013, with special transition rules for certain distributions made in December 2012 and January 2013.3 The Joint Committee on Taxation (JCT) estimates the revenue loss from this provision as $1.2 billion.
- The enhanced charitable deduction for contributions of food inventory is extended until December 31, 2013. The JCT estimates the revenue loss from this provision as $314 million.
- The basis adjustment to stock of S corporations making charitable contributions of property is extended until December 31, 2013. The JCT estimates the revenue loss from this provision as $225 million.