Tax considerations with charitable gift annuity

Even when people want to help nonprofits do the good work they do, both the donor and recipient can encounter complications with taxes. This is especially true when the donation is not just cash but something more complicated, such as a charitable gift annuity (CGA).

During the 2015 National Catholic Development Conference (NCDC) Conference and Exposition, Cathy Sheffield of All Saints Health Foundation explained several of the tax considerations of gift annuities. For example:

* Charitable Deduction: The portion of the transaction that is considered a gift is eligible to be included as a charitable contribution on the itemized deductions part of the federal income tax return.

* Income Tax Savings: The part of the annual amount the donor receives is considered a tax-free return of capital, excluding it from gross income until they reach their life expectancy.

* Estate Tax Savings: If the donor and spouse are the only beneficiaries, the value of the annuity may not be taxed in their estates. (It may qualify as a marital deduction.)

* Typically, gifts of cash or long-term appreciated securities will be used to create a CGA (approximately 90 percent).

* The federal income tax deduction eligible to claim falls under the same contribution ceilings as for an outright gift.