This year my family transitioned from homeownership to renting
This year, my family made a significant decision to move from our Boston condominium to renting a single-family home in a nearby suburb. The high housing costs and mortgage rates led us to choose renting over buying another home. This transition had a direct impact on our charitable giving strategy for the upcoming year.
Impact on Charitable Giving due to Tax Changes
As I plan for the upcoming year, I intend to accelerate my charitable giving in 2025. This decision is not only in response to the new 0.5% adjusted gross income floor but also because I will lose the ability to deduct appreciated stock in 2026. The changing tax landscape under the One Big Beautiful Bill Act has prompted me to rethink my approach to charitable donations.
The Influence of Homeownership on Charitable Deductions
Owning a home is often seen as part of the American Dream, with the tax code incentivizing homeownership through deductions such as home mortgage interest and real estate taxes. However, these deductions are only available to those who itemize their deductions, which has become less common due to the increased standard deduction set by the Tax Cuts and Jobs Act in 2017.
OBBBA’s Impact on SALT Deduction
The One Big Beautiful Bill Act raised the cap on the state and local tax (SALT) deduction, providing relief to residents of higher tax states. This adjustment has implications for itemizers, potentially increasing the number of individuals who choose to itemize their deductions.
Strategies for Charitable Deductions in 2025
The new rules for charitable deductions present an opportunity for taxpayers to reassess their giving strategies. With changes such as the 0.5% AGI floor and caps on benefits, individuals need to plan their donations strategically to maximize their deductions.
Accelerate Giving with a Donor-Advised Fund
One effective strategy for itemizers is to accelerate charitable giving in 2025 by utilizing a donor-advised fund. This approach allows donors to bunch their donations into a single tax year, providing them with upfront deductions while enabling flexibility in directing the funds to various organizations over time.
Maximizing Tax Efficiency with Appreciated Stock Donations
Donating appreciated assets, such as stocks, can offer significant tax benefits compared to cash donations. By gifting low basis shares held for over a year, individuals can avoid capital gains tax on the appreciation and claim a deduction for the stock’s current market value.
Refining Charitable Giving Strategies for 2025
While the new tax rules may pose challenges, they also present opportunities for savvy taxpayers and their advisors to optimize their charitable giving. By understanding the implications of the changes and leveraging strategies like accelerating donations and donating appreciated stock, individuals can navigate the evolving tax landscape effectively.
For more information on charitable giving strategies for the 2025 tax year, you can visit here.
