Recent Tax Law Changes Affect Charitable Giving

Very early in the New Year, Congress passed tax legislation meant to avert the 'fiscal cliff,' at least from a tax standpoint. The American Taxpayer Relief Act of 2012 (yes, even though enacted in 2013!) is a long, complex bill with many different tax provisions. The good news is that if you support ASHRAE Foundation or other charities, the legislation leaves intact the income tax charitable deduction. It also continues the ability to deduct charitable gifts of long-term appreciated assets (real estate, stocks, and mutual fund shares) at full market value.

Here is a brief summary of a few parts of this new law that you should know about:

• Individual tax rates. The lower Bush-era income tax and capital gains tax rates were made permanent for all but the highest income taxpayers. Those with taxable incomes over $400,000 ($450,000 for married taxpayers) will have a marginal income tax rate of 39.6% and a marginal capital gains tax rate of 20%. You can read more information about this provision by clicking this link on New Incentives.
• Medicare Surtax. A new 3.8% surtax on net investment income, which includes realized capital gains, went into effect. Referred to by some as the Medicare surtax, this new tax went into effect on January 1, 2013 as part of the Affordable Care Act. It is imposed on top of other income taxes and kicks in when a taxpayer's modified adjusted gross income (MAGI) is above $250,000 for joint returns and surviving spouses, less than that for other filers.
• Itemized Deductions. The law slightly reduces itemized deductions for high income taxpayers (by 3% for every dollar a taxpayer's income exceeds $250,000 and $300,000 for married taxpayers). Includes deductions for state taxes and mortgage interest as well as charitable deductions. You can read more about this provision by clicking this link to Deduction Reduction.
• Estate and Gift Tax. The unprecedented exemption amount of $5M ($10M for married taxpayers), adjusted annually for inflation, was made permanent and portability remains. The marginal estate and gift tax rate increased from 35% to 40%.

We encourage you to talk with your tax advisor to learn more about the tax legislation and how it affects your unique situation..