The new tax law doubles what you can leave loved ones' tax free when you die and that's really bad for your alma mater. Tax breaks for donations to your alma mater may no longer make the grade with you. Here's why:
Estate Tax Exemption Rises. The Tax Cuts And Jobs Act (TCJA) doubles a married couple's estate's tax-exemption to $22 million. Alums now want to maximize their exemptions by leaving $22 million to their children, nieces, nephews and other loved ones before even thinking about a donation to favorite old schools.
Larger Standard Deduction. The TCJA upped the standard deduction from $13,000 to $24,000 for married couples and most Americans no longer will itemize deductions. But that also means you no longer may deduct college donations. Younger alumni will never get into the habit of contributing to their alma mater, disrupting the finance of U.S. educational institutions.
Athletic Deduction Nixed. Before the TCJA, many colleges targeted contributions from alumni who might qualify for good seats at games. The old law allowed donors to deduct 80% of such gifts. Now, the deduction is zero.
Taxing Endowments. Under the new tax code, schools with endowments of $500,000 per student or more and 500 students or more face a 1.4% levy on income. Only a small number of schools are subject to this new tax, but it is a consideration in making college donations.
The Plus Side. The TCJA is not entirely bad for all education-minded donors. Some plusses:
If you itemize, you may now deduct up to 60% of your adjusted gross income on donations to qualified charities, including your old school. That's up from 50%.
You can "bunch" donations you pledge to give over several years. The deduction can exceed the write off under the standard deduction.
You can contribute via a donor-advised fund, which entitles you to a large immediate deduction on annual donations you pledge to make over a period of years. If you suddenly strike it rich, this is a great way to go.
Old Ivy has been around since before the income tax and has managed to flourish, but the new economics of supporting education is disrupting the finances of major educational institutions and the effects are yet to be felt. If you have questions about donating money to a school or your priorities in planning your estate, please contact us.
This article was written by a professional financial journalist for The Hogan-Knotts Financial Group and is not intended as legal or investment advice.