Home

Our Roots

Upcoming Events

Become a Member

Lands and Trails

Downloads

Links

New Tax Legislation - August 17, 2006

The Pension Protection Act that was signed into law on August 17, 2006 consists primarily of technical changes to the rules governing retirement plans. Included among these, however, are some changes in the tax law that may be of direct interest to you in your personal planning. Following are a few highlights:

1. Special tax advantages for some charitable contributions made directly from an IRA. The new legislation provides a special opportunity for taxpayers who have reached age 70 ½ to make charitable contributions of property held in an IRA. It has always been possible to use IRA funds for charitable contributions by taking a distribution from the IRA and then using those funds for a charitable contribution. The distribution would be included in the individual's taxable income, and the individual would claim a charitable income tax deduction. Under the usual rules, however, the income tax deduction does not fully offset the income inclusion, and the individual ends up paying income tax on a portion of the funds contributed to the charity. (There are a number of different rules that produce this effect, including the fact that there is no Massachusetts charitable income tax deduction.) This provides a special opportunity for anyone planning on using IRA assets for a charitable contribution. It could also be helpful to a donor who wishes to make a substantial charitable contribution, and is running up against the limitations on charitable deductions. Gifts to donor advised funds and so-called supporting organizations are not permitted and gifts cannot exceed $100,000 in each of 2006 and 2007.
   
2. Increase in the available income tax deductions for contributions of conservation easements on real property. If you have been considering a charitable contribution of a conservation easement, now may be the time to move forward. The new legislation encourages individuals to contribute significant conservation easements by relaxing the limitations on income tax deductions for gifts of conservation easements. For easements contributed before the end of 2007, the limit on deductions is raised to 50% of the donor's adjusted gross income. Furthermore, any excess can be carried forward and deducted over the next 15 years on the same basis. The usual rule is that the maximum a donor could deduct in a single year is an amount equal to 30% of his or her adjusted gross income. Unused deduction amounts can be carried forward, but only for five years. If the easement has a high value, the donor may lose part of the potential deduction. The result of this new legislation is that a donor is virtually certain to enjoy the full tax benefit of contributing a conservation easement. It is important to note, however, that it is effective for only a short window-the contribution must be completed before the end of 2007. The process of completing a conservation easement typically takes many months. If you think that you may be interested in taking advantage of this window of opportunity, you should begin the process of transferring an easement as soon as possible.
   
3. Increased recordkeeping required for all cash gifts - no matter how small. The new legislation denies taxpayers a charitable income tax deduction for charitable gifts of money unless the taxpayer has a bank record or an acknowledgment from the charity. From now on it is a good practice to make small charitable gifts by check if you plan on claiming an income tax deduction.

Additional information on donations of land can be found at the Land Trust Alliance