Uncertainty over Tax Reform Drives Investors to Charitable Gifts

Rarely does a week pass without some shakeup in Washington D.C. making the headlines. Most recently, the debate over tax reform has taken center stage and on this Giving Tuesday, it is a pertinent time to examine how the proposed changes are sure to influence charitable giving practices. Investors across the country are taking note and have been making serious moves to benefit from the existing tax laws before any changes go into effect.

Both proposed tax-reform bills that are currently being reviewed by the House and Senate still allow for charitable contributions to be deducted, but because the proposed standard deduction could be doubled for most households, far fewer taxpayers will be itemizing in 2017, thus reducing the need to make charitable gifts to reduce the tax burden.

According to the National Philanthropic Trust, there were approximately 285,000 individual Donor-advised Funds (DAF) in 2016 that held $85 billion in assets. Donors contributed $23 billion to their DAFs and recommended grants of almost $16 billion. Those numbers continue to climb in 2017. One of the biggest reasons DAFs are so popular is because of the ability to make contributions of stock for the maximum tax deduction. With the surging stock market, many investors are finding they have several appreciated assets in their portfolio that they can gift to a DAF to avoid tax penalties. And they can make the contribution in full at any time during the tax year and grant the funds out in the future.

Gregory W. Baker, President of Renaissance Charitable Foundation said, “This year, our donors contributed a wide variety of assets including publicly traded securities, real estate, closely-held businesses, patents and hedge funds. We love helping donors our donors create their DAF and then make strategic grants to their chosen charitable causes about which they care deeply.”

The real estate market has been in an upward trend for the past two years, driven in part by record low interest rates on home loans. “A prolonged sellers’ market has encouraged many investors to unload underused property, and the ability to donate that property to a Charitable Remainder Trust (CRT) or DAF makes the solution all the more appealing,” said Kevin McGrath, Executive VP of Client Advancement at Ren. “Avoiding capital gains taxes, creating income tax deductions and fulfilling philanthropic wishes are a few of the many reasons our phones are ringing off the hook this year-end.”

While the current tax proposals have no provision for an increase in capital gains tax, the debate on Capitol Hill rages on and staying ahead of the curve on tax laws is a practice most smart investors employ.

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