Since You Asked...
You Asked: I understand that there is a way for me to make a charitable contribution directly from my IRA account. What is the benefit of doing that?
Answer: Taxpayers 70½ years of age or older may make direct transfers of up to $100,000 from their IRA to a qualified charity with the following results: (1) The distribution is excluded from income; (2) The distribution counts towards the taxpayer’s Required Minimum Distribution for the year; and (3) The distribution does NOT count as a charitable contribution. The distribution must come from a Traditional or Roth IRA, but it cannot be from a SEP-IRA. Unless extended by Congress, 2007 is the final tax year for this provision.
On the surface, this may not appear to provide tax benefits. However, by excluding the distribution, a taxpayer lowers his income (AGI) for other tax breaks pegged at AGI levels such as medical expenses, passive losses, taxable Social Security, etc. Non-itemizers essentially receive the benefit of a charitable contribution to offset the IRA distribution. If you think that this tax provision may affect you and you would like to explore the possibilities with some tax planning, please call this office.
You Asked: I am getting elderly and would like to put my adult child’s name on the deed to my home in case something happens to me. Is there any problem with doing that?
Answer: That is not a good thing to do. Here is what happens when you do that: (1) You are, in effect, gifting a portion of the home to your child at that time, and if the value of the gift portion is greater than the annual gift tax exclusion ($12,000 for 2007), then you would need to file a gift tax return; (2) Although you most likely will not owe any gift tax, your child’s basis in the property will be what your basis is at the time of the gift, and subsequent taxable gain is measured from that basis; (3) Your child will not benefit from any potential step up in basis to the home’s fair market value (FMV) at the time of your death on the portion transferred to the child; (4) The portion owned by the child probably will not qualify for the homeowner’s gain exclusion; and (5) Your lifetime gift tax exclusion will be reduced by the FMV of the gift. In addition, it may complicate other issues if there are multiple beneficiaries whom you intend to share in your estate equally. It is generally better to simply allow the child to inherit the home upon your death.
E Thomas Associates Inc. is a registered investment advisor in Kentucky.
Dave Smith & Tony King are Registered Representatives of and securities are offered through Dalton Strategic Investment Services, Inc., member FINRA & SIPC. 6408 River's Edge Rd, Greenville, OH 45331
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