Starting tomorrow the House and Senate are expected to give final approval to major tax reform legislation, known as the Tax Cuts and Jobs Act (HR 1), before sending it to President Trump who has indicated he will promptly sign the measure into law. As discussed on our December 14 update, HR 1 is the most significant re-write of the United States Tax Code in three decades and, despite a historic lobbying effort by the nonprofit community, the legislation will significantly impair tax incentives for charitable giving and make a number of other changes that will greatly affect the tax-exempt sector.
The final legislative text and related documents were released late on Friday and over the weekend. Full text of the 500 page bill and an explanatory statement can be found here. The Joint Committee on Taxation revenue table for the legislation can be found here. “Policy highlights” from House Ways & Means and Senate Finance can be found here.
Significant provisions in HR 1 for charitable gift planners include the following:
- Increases standard deduction and eliminates or limits certain itemized deductions resulting in the vast majority of taxpayers no longer itemizing on their returns. Sec. 11021.
- Preserves the charitable deduction for those taxpayers who still itemize (but see above) and increases the AGI limitation for cash gifts from 50 percent to 60 percent. Sec. 11023.
- Doubles the estate and gift tax exemption for estates of decedents dying and gifts made after December 31, 2017, and before January 1, 2026 by increasing the exclusion amount from $5 million to $10 million. The $10 million amount is indexed for inflation occurring after 2011. Sec. 11061.
- Imposes a 1.4% excise tax on net investment income for certain private colleges and universities. Sec. 13701.
- Imposes a 21% excise tax on compensation for certain nonprofit executives making over $1 million annually. Sec. 13602.
- Repeals exception that relieves a taxpayer from providing a contemporaneous written acknowledgment by the donee organization for contributions of $250 or more when the donee organization files a return with the required information. Sec. 13705.
- Repeals the special rule that provides a charitable deduction of 80 percent for college athletic event seating rights. Sec. 13704.
- Specifies that the charitable deduction of an electing small business trust is not determined by the rules applicable to individuals (meaning the percentage limitations and carryforward provisions applicable to individuals apply to charitable contributions made by the portion of an electing small business trust holding S corporation stock). Sec. 13542.
It is also noteworthy what was not included in the final legislative package that emerged on Friday. Changes to the excise tax on private foundation investment income, disclosure requirements for DAFs, modification of rules for excess business holdings of private foundations, and a rollback of the Johnson amendment were all cut from the final bill, but CGP expects lawmakers to revisit these provisions, especially the Johnson amendment language, in separate legislation.
CGP is most distressed the final bill does not include a universal charitable deduction available to all taxpayers regardless of whether they itemized and is further concerned this legislation, when taken as a whole, will have a detrimental effect on charitable giving in America. Nevertheless, CGP will work in 2018 and beyond to advocate on Capitol Hill for a favorable environment for charitable giving.
CGP will provide additional analysis in the weeks ahead and discuss HR 1 in full detail during the January legislative update call scheduled for Wednesday, January 17th at 11:30 am EST. CGP members can log in to CGP Link to register for FREE. If you are not a CGP member, you are able to purchase access in the CGP Shop.