• October 20, 2014

New Tax Deal Lowers Estate Tax and Extends IRA Charity Break

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Richard White/Chronicle of Philanthropy

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Richard White/Chronicle of Philanthropy

Congress has approved a new tax deal that would lower estate-tax rates from 2009 levels and extend a benefit for older donors who tap their individual retirement accounts to make charitable donations.

President Obama, who brokered the deal with Republican lawmakers, is expected to sign the bill into law today.

The legislation sets estate-tax rates at 35 percent and establishes exemptions that would allow couples to pass estates as large as $10-million to their heirs tax-free. Individuals could pass on the first $5-million tax-free.

Independent Sector, a coalition of foundations and charities, had argued against that provision, suggesting wealthy people would give less to charity when confronted with lower tax rates. Independent Sector had called for leaving the tax at 2009 levels (45 percent), with the first $3.5-million exempted for individuals ($7-million for couples).

On her Twitter feed Friday morning, Diana Aviv, president of Independent Sector, praised the new legislation for extending unemployment benefits, cutting Social Security payroll taxes for nonprofit employees, and preventing wholesale tax increases in January. But she predicted that the measure would mean a “huge loss of revenue from many who will keep estate-tax benefits for themselves and not give to charity.”

If Congress had failed to act before the end of the year, the estate tax, which had expired for 2010, would have jumped to a 55-percent rate for individuals worth more than $1-million. Conservatives have argued for a permanent end to the estate tax, which they deride as a “death tax” that re-taxes money simply because the earner died.

Retirement Accounts

The tax deal also will allow people age 70 1/2 and older to channel up to $100,000 a year from individual retirement accounts tax-free to charities in 2011. Such a break was in place for 2009, but Congress had not acted to extend it for 2010.

Under the measure passed last night, not only would such donations be tax-free for any gift made in 2010 but also donors would be allowed to make retirement-account gifts through the end of January and still count them in their 2010 taxes.

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