Dear Valued Clients and Friends:
The recently enacted Pension Protection Act of 2006 (“PPA”) contains numerous provisions affecting pensions and IRAs. The Act also has provisions designed to prevent abuse in the charitable sector and provide additional tax incentives for charitable giving.
Charitable Giving Incentives
Tax-free distributions from IRAs for charitable purposes.
For 2006 and 2007, PPA permits taxpayers who are at least age 70-1/2, to exclude from gross income direct distributions to charities of up to $100,000 from an IRA or Roth IRA which would otherwise be included in income.
Food and book Donations.
The enhanced food and book donation rules under the 2004 Katrina tax act are extended to 2006 and 2007.
Qualified conservation contributions.
PPA raises the limit for 2006 and 2007, on deducting contributions of qualified conservation property by individuals—from 30% of adjusted gross income to 50%.
Charitable reform
PPA also imposes new requirements and restrictions on donors and exempt organizations. Listed below are some of the new rules.
- No deduction is allowed beginning in 2007 for individuals for any cash, check, or other monetary gift unless the donor can show a bank record or a “written communication” from the charity showing name of charity, amount, and date.
- No deduction is allowed after August 17, 2006, for used clothing and household items unless the items are in “good” condition. Exempt from this rule is the contribution of a single item worth more than $500 for which a qualified appraisal is included in the return. In any case, IRS may deny a deduction for an item of minimal value.
- Donors must recapture the tax benefit for contributions of property to charities not used for an exempt purpose.
- The rules for donating “façade easements” of buildings in historic districts are tightened. Also, any deduction is reduced by any rehabilitation tax credit that was claimed for the property.
- New rules govern the contribution to charities of “fractional interests” in tangible personal property after August 17, 2006.
- The thresholds are lowered for penalties on a donor for overvaluing property contributed to charities. In addition, new penalty provisions apply to substantial valuation misstatements by appraisers. These rules apply for income tax as well as estate and gift tax.
Pension Plan / IRA Changes
A 2001 tax act made temporary increases to contributions limits for pensions and IRAs for years through 2010. PPA has made many of these permanent. Many people thought these were permanent already. Some of these are as follows:
- The increased maximums for contributions to pensions and IRAs, including the extra amounts for those aged 50 and over.
- The increased salary limitations for profit-sharing plans.
- The increased benefit allowed under
