A glimmer of hope from Congress benefits donors, nonprofits

Much in the same way that we have enjoyed several years of good economic times, we must also suffer through a difficult period in our economic history. This is the cyclic nature of life.

But despite the cloud of doom and gloom in our financial markets, a ray of good fortune has appeared for the nonprofit sector and the donors who support it.

You may recall that the Pension Protection Act of 2006 permitted individuals to roll over up to $100,000 from an individual retirement account directly to a qualifying charity without recognizing the assets transferred to charity as income. This unique opportunity expired on Dec. 31.

However, good news emerged from Congress on Oct. 3 when President Bush signed a bill into law that will extend the IRA Charitable Rollover Provision through Dec. 31, 2009.

The Pension Protection Act uses the term "qualified charitable distribution" to describe an IRA charitable rollover. A qualified distribution can be made to a charitable organization from a traditional IRA of an individual who is 70½ or older. An individual may exclude up to $100,000 from his/her gross income for each tax year for qualified charitable distribution from IRAs. (As in the original legislation, distributions to donoradvised funds do not count as qualified distributions under these special rules. A donor may still make a distribution from an IRA to a donor-advised fund, but the donor will first have to recognize the distribution as income).

You may be wondering under what circumstances will this special treatment of the IRA charitable rollover most likely benefit a donor. Generally, donors who itemize deductions and whose charitable contributions will be reduced by the percentage of income limitation or by the itemized deduction reduction will benefit from making a qualified charitable distribution.

Traditionally, a person who receives a distribution from an IRA and makes a corresponding charitable contribution must count the distribution as income but will receive a charitable deduction for any amounts transferred to charity. However, the charitable contribution deduction may not totally offset the taxes resulting from the distribution from the IRA. This is due to application of the percentage limitations on charitable contributions and the reduction of itemized deductions for higher income taxpayers.

For that reason, the new provision will allow the distribution to be entirely excluded from an individual's income. Since the rollover gift is excluded from income, neither the percentage limitations nor the itemized deduction reduction rules apply and the donor achieves a tax benefit.

The extension of this provision can have enormous impact on our charitable sector. When created in the 2006 Pension Protection Act, the charitable rollover produced more than $130 million in charitable gifts in 2006 and 2007 nationwide.

As banks foreclose on homes, individuals lose their jobs, and the markets struggle to find stable ground, local nonprofits face increases in client services. And, as government and family budgets tighten, donations to these nonprofits dwindle. If you are 70½ or older, we urge you to consider whether you can utilize this unique opportunity to support our local nonprofit sector. Contact your professional advisor to determine the effects of these new rules on your specific tax situation or visit our web site at www.floridacommunity. com for downloadable fact sheets for more information.

The Southwest Florida Community Foundation has been supporting the communities of Lee, Charlotte, Collier, Glades and Hendry through endowed funds for nearly 32 years. With assets of more than $57 million and over 320 endowed funds, the Community Foundation has provided more than $30 million in grants and scholarships to the communities it serves.

For more information, call (239) 274-5900, or visit their Web site at www.floridacommunity.com.