During 2012, many donors planned to use the IRA charitable rollover to make a gift to their church or other organizations. They were unable to do so because Congress had not yet extended the rollover. As a result, these donors took their required minimum distribution knowing that they would have to pay tax on the distribution. The American Taxpayer Relief Act of 2012 has extended the IRA Charitable Rollover for 2013, with special provisions that allow donors to make gifts that are retroactive for the 2012 tax year if they act before February 1, 2013.
There are two ways donors can take advantage of the recent changes for their 2012 taxes:
1. Under a special rule included by Congress in the recent law, donors who received a distribution from their IRA between December 1, 2012 and December 31, 2012 canconvert this taxable distribution into a charitable distribution by making a cash gift to charity before February 1, 2013. The IRS will treat the amount of the cash gift as if the donor had made a direct rollover to charity in 2012 and the donor will avoid tax on the amount of the gift.
2. Donors can make a qualified charitable distribution from their IRA before February 1, 2013 and choose to have that distribution treated as though it occurred in 2012.
For those donors who made a charitable distribution from their IRA in 2012 in hopes that Congress would extend the IRA Charitable Rollover, you made the right call! Distributions made from IRAs directly to qualified organizations can be considered qualified charitable distributions.
Be sure to consult your legal and financial advisor if you are considering a gift under this law.