Charitable Planning in 2025
Published January 3, 2025
A new year provides an excellent opportunity to consider plans for charitable gifts in 2025. These gifts could include an IRA charitable rollover, a gift of cash or a gift of appreciated property.
1. IRA Charitable Rollover — The IRS refers to the IRA charitable rollover as a qualified charitable distribution (QCD). An individual over age 70½ is permitted to make a direct transfer from his or her IRA custodian to a qualified charity. The transfer is not included in taxable income. If the IRA owner is over age 73, the distribution may fulfill part or all of the IRA owner’s required minimum distribution (RMD).
Since many individuals have invested their IRAs in stocks, bonds or other securities, it may be necessary for the IRA custodian to exchange the IRA stock or bond account for a money market fund prior to the distribution. Most IRA custodians require a QCD to be paid from a money market account or similar fund. With equities markets at high levels, some individuals may choose to transfer funds from equities to a money market fund early in the year to prepare for their IRA charitable rollover. Talk with your IRA custodian to determine the next steps to make a QCD.
There are some limits for the IRA charitable rollover. The IRA owner must be at least age 70½ and the maximum transfer in 2025 is $108,000. The transfer must be to a qualified exempt charity and may be for a designated purpose or a field of interest fund. Transfers to donor advised funds or supporting organizations are not permitted. In addition, transfers may not be for a charity dinner or other event that involves a partial benefit to the donor. The entire QCD must be for a qualified charitable purpose.
2. Gifts of Cash — In 2025, individuals who itemize deductions may deduct charitable gifts of cash up to 60% of their contribution base, which is usually their adjusted gross income (AGI). While the 60% limit is substantial, some generous individuals give more and may carry forward the excess gift amounts and deduct them over the following five years. Some donors “bunch” their charitable gifts, meaning they itemize one year with the larger gifts and take the standard deduction the next year.
3. Gifts of Stock or Land — With substantial increases in value for both equities and real property, many donors find that a gift of appreciated property is attractive. A gift of appreciated stock or land provides two benefits for the donor. First, the donor may receive a charitable income tax deduction for the fair market value of the stock or land. Second, because the charity is tax-exempt, the donor can bypass tax on the capital gain. If a donor purchased stock eight years ago for $10 per share and it is now worth $50 per share, the donor would pay capital gains tax on $40 if he or she sold the stock. However, by giving the stock to charity, the donor may receive a charitable income tax deduction for the $50 in value and bypass the tax on the $40 of potential gain. Since the donor is receiving both the deduction and capital gain bypass benefits, this type of gift is permitted up to 30% of the donor’s AGI. Once again, if the gift value is over this limit, it may be carried forward for five years. For example, Mary has adjusted gross income of $100,000 this year and makes a gift of appreciated stock with fair market value of $40,000. She can deduct $30,000 this year and carry forward the remaining $10,000 charitable income tax deduction to the next year.
Editor’s Note: The first month of a year is a good time to make plans. In January, donors may wish to consider their options for charitable gifts in 2025.
