Washington News

July is a great month 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 stock or land.

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 transfer directly 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).
   
   Because many individuals have invested their IRAs in stocks, bonds or other securities, it may be necessary to exchange the IRA stock or bond accounts 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.
   
   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 field of interest fund. However, it may not be to a donor advised fund (DAF) or supporting organization (SO). 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 than this and may carry forward and deduct the excess gift amounts over the next five years.
    
3. Gifts of Stock or Land — With substantial increases in value for both stocks and real property, many donors will find that a 2025 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 contribution deduction for the fair market value of the stock or land. Second, the charity is tax-exempt and therefore the donor is able to bypass tax on the capital gain.

If the donor purchased stock seven 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 deduction for the $50 in value and bypass the tax on the $40 of potential gain. Because the donor is receiving both the deduction and capital gain bypass benefits, this type of gift is permitted to 30% of adjusted gross income (AGI). Once again, if the value is in excess of this limit, it may be carried forward for an additional five years.

For example, Mary Smith has adjusted gross income of $100,000 this year and makes a gift of appreciated stock with a fair market value of $40,000. She is able to deduct $30,000 and carry forward $10,000 and deduct that amount over the following five years. 

Editor’s Note: Summer is a good time to make plans and consider the options for gifts in 2025.

One Big Beautiful Bill Act Passes House and Senate

On July 1, the Senate was deadlocked 50 to 50 on the One Big Beautiful Bill Act. However, Vice President JD Vance voted in favor of the bill, and it passed by a vote of 51 to 50. The bill then moved to the House of Representatives and passed 218-214 on July 3, 2025.

There are multiple tax and spending provisions in the 887-page bill. These will impact all Americans in the coming years.

1. Permanent Tax Cuts— The Tax Cuts and Jobs Act of 2017 (TCJA) created lower brackets that phased out at the end of 2025. The new bill will make all these tax rates and brackets permanent.
    
2. Child Tax Credit— The current $2,000 child tax credit is expanded to a permanent $2,200 tax credit per child. There are new requirements and limits that may result in reduced credits for some families.
    
3. State and Local Taxes (SALT)— A highly-contentious issue has been the existing $10,000 cap on deductions for state and local taxes. The Senate bill accepted the House bill increase to $40,000. However, the larger cap phases out for high-income taxpayers, and they will be limited to a $10,000 SALT deduction. The cap would revert to $10,000 in 2030.
    
4. Senior Citizens— The White House had proposed there be no tax on Social Security. While Social Security remains taxable, there is a $6,000 increase to the standard deduction until the end of 2028. The increased standard deduction will start to phase out for single taxpayers with $75,000 in income and married couples with $150,000 of income.
    
5. Charitable Deductions— There is a nonitemizer charitable deduction of $1,000 ($2,000 for married couples) that may be taken in addition to the standard deduction. This is offset by a 0.5% floor on charitable deductions. Top bracket taxpayers are limited to 35% (rather than 37%) for itemized deductions.
    
6. Private University Endowment Tax— While the initial One Big Beautiful Bill Act endowment tax top rate of 21% was reduced to 8%, there will be a new tax on private universities that have more than $2 million in endowment per student. The number of tuition-paying students has increased from 500 to 3,000 for this tax to be applicable.
    
7. Baby Benefit—American babies born between 2025 and 2028 could receive a $1,000 benefit from the government. Parents may add $5,000 per year to the account. This account may grow tax-free until the child is age 18.
    
8. No Tax on Tips or Overtime— The White House had proposed to eliminate taxes on tips or overtime. The limitation is up to $25,000 for tip income and $12,500 for overtime pay. This benefit phases out for individuals with incomes over $150,000.
    
9. Solar, Wind and Energy Credits— The majority of the credits in the Inflation Reduction Act are phased out. The $7,500 credit for new electric vehicles and $4,000 credit for used EVs phases out after September 30, 2025. Many other solar and wind credits will phase out by the end of 2027.
    
10. Estate Exemption— The TCJA doubled the estate exemption, and it has been indexed for inflation since 2018. The 2025 estate exemption of $13.99 million will be increased to $15 million in 2026.

Editor's Note: This information is offered as a service to our readers.

Diverse Commentary on the One Big Beautiful Bill Act

There is a widespread diversity of opinion on the One Big Beautiful Bill Act. Two organizations that have commented on the bill are the American Institute of CPAs (AICPA) and the Committee for a Responsible Federal Budget (CRFB). As is the case with many organizations in America, they have strongly different opinions on the bill.

The AICPA is strongly supportive of the bill because of the Senate modifications. The AICPA claims the Senate provisions that allow pass-through entities (PTEs) to deduct state and local taxes are necessary for them to have a comparable tax position with corporations. The AICPA strongly advocated that the bill be modified to allow the pass-through entities to have full deductions for state and local taxes.

The AICPA published a letter and stated, "We appreciate the challenges that come with drafting a budget reconciliation bill that permanently extends tax provisions, enhances tax administrability and balances the interests of individual taxpayers and business taxpayers."

There are multiple provisions that were approved in the Senate bill. The Senate bill expands on the use of section 529 accounts to cover expenditures for post-secondary credentials. It also makes the section 174 deduction for research and development expenditures, along with the 100% bonus depreciation provision, permanent.

In addition, the bill permanently extends the section 199A qualified business income deduction, with an expanded phase-out range for specified service trades or businesses.

The AICPA expressed appreciation to the Senate for "significant improvements" in the bill. The AICPA President & CEO Mark Koziel, CPA, CGMA, stated, "We are grateful to members of Congress who supported millions of businesses’ ability to retain this critical deduction."

The Committee for a Responsible Federal Budget had a strongly negative response to the One Big Beautiful Bill Act. It noted that the bill adds $4 trillion to the national debt through 2034.

The House bill instructions required $2 trillion of spending cuts in order to pass the $4.5 trillion in tax cuts. However, the Senate Bill was "$600 billion or more short" of the spending cuts.

Maya MacGuineas is President of the CRFB. She noted, "The level of blatant disregard we just witnessed for our nation's fiscal condition and budget process is a failure of responsible governing. The Senate bill would add $600 billion to the deficit in 2027 alone, push deficits above 7% of GDP, drive debt to new record highs, and accelerate the insolvency of Social Security and Medicare."

In the view of the CRFB, the bill fails the test of fiscal responsibility.

Editor's Note: With 435 members of the House of Representatives, 100 Senators and the White House, compromises are inevitable with any large piece of legislation. The One Big Beautiful Bill Act was no exception, reflecting the legislative process intentionally established during the Constitutional Convention of 1789. As a result, various organizations will express differing opinions on the bill and its contents.

Applicable Federal Rate of 5.0% for July: Rev. Rul. 2025-13; 2025-28 IRB 1 (17 June 2025)

The IRS has announced the Applicable Federal Rate (AFR) for July of 2025. The AFR under Sec. 7520 for the month of July is 5.0%. The rates for June of 5.0% or May of 5.0% also may be used. The highest AFR is beneficial for charitable deductions of remainder interests. The lowest AFR is best for lead trusts and life estate reserved agreements. With a gift annuity, if the annuitant desires greater tax-free payments the lowest AFR is preferable. During 2025, pooled income funds in existence less than three tax years must use a 4.0% deemed rate of return. Charitable gift receipts should state, “No goods or services were provided in exchange for this gift and the nonprofit has exclusive legal control over the gift property.”