Katrina Emergency Tax Relief Act of 2005
Recently, President Bush signed the Katrina Emergency Tax Relief Act of 2005 (KETRA). This federal tax credit offers a unique window of opportunity for individuals planning to make charitable gifts before the end of this year.
KETRA Highlights:
Temporary Suspension on Deduction Limitations for Cash Gifts
You may deduct up to 100% of your adjusted gross income for cash contributions made between August 28 and December 31, 2005 (normally your deduction is limited to 50%).
Example: Mr. and Mrs. Taylor will have an adjusted gross income this year of $100,000. They also have a CD maturing worth $200,000 and they want to make a large gift this year. They decide to contribute $100,000 to the The Nature Conservancy. Under the new Katrina tax Act, they are able to deduct the full $100,000.
- These same outright gifts of cash also are exempt from the three-percent reduction in itemized deductions for individuals with an adjusted gross income over $145,950.
- All cash contributions to qualified charities may be deducted – not just contributions for Hurricane Katrina tax relief. These Katrina tax cut incentives apply to gifts to The Nature Conservancy as one of the “qualified charities” described in the legislation. Cash contributions include checks and credit card gifts.
Gifts with Normal Limitations:
- Non-cash gifts including securities, real estate and personal property.
- Gifts to donor advised funds, supporting organizations and private foundations.
Giving Ideas:
- This may be an excellent time to fulfill an outstanding pledge.
- If there are other financial reasons to sell appreciated securities before the end of the calendar year, you might gift all or a portion of the cash proceeds, and use the Katrina charitable deduction to off-set the capital gains tax.
- If you have any stock losses, you may want to consider selling the stock, deducting the losses to the extent allowed, and gifting the cash proceeds.
- If you have excess funds in an IRA, it may be a good time to withdrawal funds from an individual retirement account, make a cash contribution and use the deduction to off-set most, if not all, of the owed income tax.
Example: Mrs. Smith, age 72, is retired and will have an income this year of $50,000. She also has an IRA worth $800,000. Wanting to make a large gift this year she withdraws $75,000 from her IRA and donates it to The Nature Conservancy. The withdrawal brings her income to $125,000, but with the new Katrina tax relief Act, she is able to deduct the full $75,000. Her income for tax purposes is then reduced to the original $50,000.
* Donors whose adjusted gross income will exceed $145,950 with the IRA withdrawal will have a 3% reduction of other itemized deductions to the extent that their IRA withdrawal makes their adjusted gross income exceed $145,950.
As with any charitable gift we strongly encourage you to consult with your financial advisor prior to making a donation. This information is not intended to be tax or legal advice.
For more information please call 1-877-812-3698, or email legacy@tnc.org.
Learn more about The Nature Conservancy's post-hurricane work in the Gulf Coast
