Charities Get a Carve-Out in Obama’s SOTU Tax Proposals

In his State of the Union address Tuesday, President Barack Obama proposed to keep a tax incentive for charitable giving by wealthy donors, while seeking to raise other tax rates on these same people.

The president for the first time stepped back from his longtime effort to reduce the value of the charitable tax deduction by carving out an exception for charities in his proposal to significantly increase capital gains taxes on the sale of inherited assets, according to an analysis by Howard Husock, a contributing writer at Forbes.

Obama proposed to close the “trust fund loophole,” whereby assets inherited as part of an estate can be sold without realizing a tax on any increase in value from the time the assets were originally purchased.

The plan would tax gains on the value of assets inherited after the owner’s death.

The president made an exception for any assets inherited by charities on which capital gains taxes might be owed. These could continue to sell inherited assets without paying tax on any increase in value.

Husock noted that big donor-advised funds, such as those operated by Vanguard, Charles Schwab and Fidelity, are especially capable of managing inherited assets. They can easily move stock holdings from brokerage or retirement accounts within their own operations to DAF accounts.