In short, the KETRA legislation lifted the 50% of adjusted gross income (AGI) limit on charitable gifts on a one-time basis in the fall of 2005. The purpose of this provision was to allow Americans to deduct more charitable gifts than normal to help assure there would be adequate funds available for both Katrina relief and other ongoing charitable endeavors. Gifts under the KETRA provisions were possible for all public charities and were not restricted to those involved in Katrina relief.
At the time, many commentators were skeptical about whether large numbers of donors would actually give beyond the normal 50% of AGI limits. The Sharpe Group pointed out that gifts did not necessarily have to be made from “income,” as gifts from many sources of funds could qualify. For example, a person with a $200,000 AGI could sell appreciated stock, generate cash, and then donate enough to offset tax on their entire $200,000 AGI, plus whatever additional income was generated by the sale of the securities.
Many charities immediately took advantage of the KETRA opportunity and encouraged their donors to make additional gifts in the fall of 2005. Others did not. In a New York Times article at the time (see NYT, October 27, 2005), Robert Sharpe estimated that gifts under KETRA would total between $4 and $10 billion. This estimate was based on Sharpe’s research, which indicated that over $30 billion in deductions were carried forward by taxpayers in 2002. According to Treasury officials quoted in the New York Times, gifts deducted under the KETRA incentive totaled an estimated $11 billion—over three times what Congress estimated would be given when the bill was passed.
Will IRA gifts be affected?
A similar giving opportunity exists through the end of 2007. Congress has provided during 2006 and 2007, taxpayers may give up to $100,000 to charity directly from a traditional or Roth IRA. These amounts need not be reported as part of the donor’s adjusted gross income. This allows donors who do not ordinarily itemize, have reached their 50% of AGI limit, are concerned about taxation of Social Security income, or don’t need their mandatory IRA withdrawals to make special tax-favored gifts this fall.
Efforts are now underway to persuade Congress to extend this special tax incentive for charitable gifts beyond 2007. In the meantime, it is important to act now to encourage donors to take advantage of the opportunity that exists between now and the end of this year.
Remember donors are limited to a total of $100,000 in rollover gifts this year, so alerting donors now may help assure your organization receives its share.
Editor’s note: See page 7 for information about special publications available through Sharpe to help you inform your donors about IRA rollover giving opportunities.