The American Taxpayer Relief Act of 2012 made some changes to the federal gift and estate tax laws:
- The individual lifetime gift, estate, and generation-skipping tax exemption amount is set at $5 million. This amount will be indexed for inflation in future years.
- The transfer/estate tax rate has been raised to 40%.
- Any unused estate tax exemption of the first spouse to die can be transferred to the surviving spouse and added to his or her own exemption. This “portability” provision is now permanent.
- The annual gift tax exclusion is now $14,000, which means each year you can give individual recipients each up to $14,000 without any gift tax consequences.
- The IRA Charitable Rollover was reinstated for 2012 and 2013. Congress has not yet extended it for 2014.
Deductibility of Charitable Gifts
If you itemize your deductions, making charitable gifts can play a significant role in reducing taxable income. However, there are rules which may limit your charitable deduction in a particular year. The American Taxpayer Relief Act of 2012 caps the itemized deductions for individuals earning more than $250,000 and married couples earning more than $300,000.
Cash gifts can be deducted up to 50% of adjusted gross income. Any excess may be carried over for five additional years until completely used.
Gifts of appreciated assets, such as securities and real estate (which have been held for longer than one year), can be deducted at full fair market value up to 30% of adjusted gross income. If the gift is made outright to charity, then the entire capital gain on the asset is avoided. Gifts that return income may have some capital gains ramifications. NOTE: The deduction for gifts of appreciated assets held for one year or less may be limited to your cost basis in the asset.
Gifts of tangible personal property, such as works of art or jewelry, can be deducted in amount equal to 30% of your adjusted gross income. In order to claim a full fair market value deduction, those assets must be used in relation to the charity’s mission. If such an asset is not used in a way related to the charity’s mission, you may only deduct your cost basis in the asset.
The current federal income tax rates range from 10% at the low end all the way to 39.6% at the highest level. State income rates are in addition to the federal rates quoted above.
Capital Gains Taxes
Generally, for investment assets held for longer than one year, the federal capital gains tax rates range from 0 to 20% depending on the regular tax bracket of the donor. State capital gains taxes are in addition to any federal taxes. For investment income above $200,000 (or $250,000 for a couple), there is an additional 3.8% "Obamacare" tax.