(Jan. 7, 2013) — On January 1, 2013, Congress passed the American Taxpayer Relief Act of 2012. While there are many more discussions about charitable giving and tax policy to come in 2013, here are three changes in this new law important for you to know right now:
IRA Charitable Rollover
It provides an extension for tax-free distributions from individual retirement plans for charitable purposes, known as the IRA Charitable Rollover, retroactive to January 1, 2012 through December 31, 2013. For 2012 tax deductions, charitable distributions made from an IRA must be made no later than January 2013 to be applied as a 2012 gift. IRA Charitable Rollover was extended for all of 2013.
Qualified Conservation Contributions
It also provides for extension of the special rule for contributions of capital gain real property made for conservation purposes, also retroactive to January 1, 2012 through December 31, 2013.
Pease Limitation on the Charitable Deduction
It reinstates the “Pease” limitation on itemized deductions for those making $300,000 or more. This provision progressively decreases the value of itemized deductions on those earners over $300,000. The Pease limitation was repealed under President George W. Bush as part of the 2001/2003 tax cuts and was set to be reinstated with the expiration of those tax cuts.
If a taxpayer’s income exceeds this amount, and he or she itemizes deductions, an amount equal to 3 percent of the excess over the threshold is disallowed. However, no more than 80 percent of the taxpayer’s deductions can be lost and several deductions, including the medical expense deduction, are exempt from the cut.
See the Alliance for Charitable Reform for more on the Pease limitation and examples of how it works.