What Does the American Taxpayer Relief Act Mean for Nonprofits?

The American Taxpayer Relief Act was signed into law in extremis on January 2, 2013, bringing with it important changes to the country’s tax laws, including the extension of a number of credits, exemptions, and favorable rates that were scheduled to expire at the end of 2012.

For nonprofits and charities – and for the individuals and corporations who donate to them – the American Taxpayer Relief Act is a mixed bag. Here’s why:

1. New limits on itemized deductions for high-income donors:

“Effective January 1, 2013, the Act has reinstated the so called ‘Pease limitation,’ which … caps the amount of certain itemized deductions, including the charitable deduction, that an individual may take if his or her adjusted gross income exceeds a certain threshold amount called the ‘applicable amount.’ … For a high-income donor who makes a large gift to charity, the Pease limitation may significantly reduce the amount of itemized deductions that a donor might otherwise expect to report.” (Manatt, Phelps & Phillips)

2. Tax-free IRA charitable rollovers restored:

“The new law restores the ability of an individual who has attained age 70½ to make a tax-free IRA distribution (commonly referred to as a “rollover”) to charity of up to $100,000 during 2013. And if the individual acts during January 2013, he or she can rollover an additional $100,000 and have it treated as if it was rolled over in 2012 (a year in which the IRA charitable rollover had temporarily expired until the enactment of the new law).” (Patterson Belknap)

3. The benefits of giving real property extended:

“The Act extends for two years, through December 31, 2013, the increased contribution limits and carryforward period for contributions of appreciated real property (including partial interests in real property) for conservation purposes.” (Dechert)

4. Corporate food contributions given special treatment:

“The enhanced deduction for contributions of apparently wholesome food from a taxpayer’s trade or business is reinstated retroactive to January 1, 2012, and extended through December 31, 2013. Under this provision, a C corporation can claim a charitable contribution deduction equal to the lesser of (a) basis plus half of the property’s appreciation, or (b) twice the property’s basis.” (Patton Boggs)

5. Provisions for enhanced book and computer donations ended:

“[T]wo provisions for enhanced charitable deductions – contributions of book inventories to public schools and corporate contributions of computer inventory – were not extended.” (Proskauer)

The updates:

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