Napier & Company, LCC

IRA Transfers to Eligible Charities Reinstated and Extended

Taxpayers who are age 70 1/2 or older can once again make tax-free distributions from their IRA accounts to a charity. These distributions are neither included in gross income nor claimed as an itemized deduction on the taxpayer's return. Before the recent tax law changes these rules didn't apply to tax years beginning after Dec. 31, 2009. The new law extends this provision for two years so that it's available for charitable IRA transfers made in tax years beginning before Jan. 1, 2012. In addition, a taxpayer can elect for such a distribution made in January of 2011 to be treated as if it were made on Dec. 31, 2010.

Thus, a qualified charitable distribution made in Jan. 2011 is allowed to be either:

(1) treated as made in the taxpayer's 2010 tax year and thus so allowed to count against the 2010 $100,000 limitation on the exclusion, and

(2) treated as made in the 2010 calendar year and so allowed to be used to satisfy the taxpayer's minimum distribution requirement for 2010.

This can be a great tax savings strategy for taxpayers who take money out of their IRA accounts, give to charities, but do not actually itemize their deductions.