How 2022 Federal Tax Proposals Could Impact Charitable Giving

This year promises to be an interesting one from a tax planning perspective.  Several proposals have been released, including those contained in the “Green Book,” which is the US Treasury Department’s explanation of the Biden administration’s FY 2022 tax proposals.  While we are early in the process and changes are certain, it’s helpful to briefly share a few of the administration’s key proposals that could impact charitable planning.

One noteworthy proposal from a charitable planning perspective comes from a potentially significant increase in taxes paid on recognized capital gains for taxpayers whose AGI exceeds $1 million, which would be taxed at ordinary income levels instead of the reduced capital gains rate.  An increase like this would create an attractive incentive for affected taxpayers to support charitable organizations by donating appreciated assets like stock and real estate.

Another Biden proposal with a substantial impact on wealthy individuals changes the way capital gains assets are taxed on transfer.   Transfers at death or to certain irrevocable trusts during life would be a taxable event with a $1 million exclusion per person.   This is a significant shift from the current system of carry over basis to trusts and a stepped-up basis at death. This will result in ramifications for existing estate plans for many families and create a charitable incentive for donations of those assets to charity. 

Finally, while outright transfers to charity would remain exempt from creating taxable gains for donors as a general rule, transfers to split interest gifts like charitable remainder trusts would trigger gains for the donor for the non-charitable portion of the trust, which would notably reduce the benefits of this type of gift.

Despite the uncertainty about exactly what might happen that would impact giving in 2022, there are still opportunities for making taxwise charitable gifts this year thanks to recent extensions of opportunities created by the CARES Act.   Remember that the above-the-line temporary charitable deduction was extended through 2021. Non-itemizer individuals in tax year 2021 can deduct $300 for cash contributions to qualifying public charities, and non-itemizer couples filing jointly qualify for $600. Donations to donor advised funds and supporting organizations are not eligible for this deduction; however, OCF can create many different types of funds that would qualify for the deduction.

Also, the increased AGI limitation on the charitable income deduction from the CARES Act was extended for a year for corporations and taxpayers who itemize. The limits for 2021 is 25 percent of taxable income for corporations and there is an optional election that can be made for cash gifts to public charities from individuals to allow them to deduct up to 100% of their AGI.  

Of course, most donors give to organizations they care about for reasons other than tax benefits but incentivizing giving in our tax code is icing on the cake. We’ll keep you posted on further developments.

The National Association of Charitable Gift Planners and the American Council on Gift Annuities has issued a joint statement on the Biden proposal, which you can review here.