Hurricane Katrina Relief Act Provides Special Charitable Giving Incentives in 2005

In response to the devastation of Hurricane Katrina, new charitable giving incentives offer donors and charities a window of opportunity to maximize tax benefits from charitable contributions. The new rules are effective only for gifts made by Dec. 31, 2005.

The Katrina Emergency Tax Relief Act of 2005, signed into law on Sept. 23, 2005, enacted the temporary giving incentives.

An individual may deduct charitable contributions of cash made between Aug. 28 and Dec. 31, 2005 in an amount up to 100 percent of the individual’s adjusted gross income for the year. Under normal rules, the annual deduction is limited to 50 percent of adjusted gross income.

This special rule applies only for cash gifts to public charities. It does not apply to gifts to most private foundations, supporting organizations, or gifts to donor-advised funds such as those offered by community foundations. It does not apply to gifts of stock or other property. While the legislation is intended to assist victims of Hurricane Katrina, charitable gifts made by individuals do not have to be limited to providing Hurricane Katrina relief in order to qualify for the special rule.

The legislation also provides an incentive for charitable giving by corporations. A charitable gift by a corporation made between Aug. 28 and Dec. 31, 2005 is deductible in an amount up to 100 percent of the corporation’s taxable income. Under normal rules, the annual deduction is limited to 10 percent of taxable income. Corporate gifts must be limited to Hurricane Katrina relief efforts in order to qualify for the special incentive. As with gifts by individuals, the special rule applies only to cash gifts to public charities, and does not apply to gifts to most private foundations, supporting organizations or donor-advised funds.

Contributions made under the special rules that exceed the annual limits for 2005 may be carried over to succeeding taxable years, but normal limitations on charitable contribution deductions will apply in those years.

The legislation also provides special incentives for donations of food inventory, as well as donations of books to a public school where the books will be used in the school’s educational programs.

Individuals and corporations have a brief time frame in which to plan charitable gifts in 2005 to take advantage of these rules.