Charitable giving strategies for the 2025 tax year

This year my family outgrew our Boston condominium and I became a renter for the first time in a decade. Due to high housing costs and mortgage rates, instead of buying another home we chose to rent a single-family home in a nearby suburb. 

It was a decision that affected our charitable giving strategy. I now plan to accelerate my charitable giving in 2025, not only to get ahead of the new 0.5% adjusted gross income floor, but because I’ll lose the ability to deduct appreciated stock in 2026. 

It’s a move other itemizers might consider. New rules for charitable deductions under the One Big Beautiful Bill Act give advisors a timely opportunity to coordinate with CPAs before year-end to help clients see if accelerated giving makes sense for them. Advisors can also help execute tax-saving strategies by identifying low-basis tax lots in portfolios that are optimal for donation.

Owning a home is part of the American Dream for many. One could argue that the tax code encourages homeownership through the home mortgage interest and real estate tax deductions. Real estate agents happily explain that monthly payments are reduced because of these “write-offs.” 

Mortgage interest and real estate tax deductions are only available, however, if you itemize deductions. That requires aggregating deductions to exceed the standard deduction, currently $31,500 for joint filers in 2025. Since 2017’s Tax Cuts and Jobs Act substantially raised the standard deduction, the percentage of those who itemize on their tax returns dropped to less than 10% in 2022 from over 30% in 2017. 

READ MORE: Real estate a big beneficiary of Trump’s OBBBA

Deductible expenses are tallied on tax form Schedule A under the categories medical and dental expenses, taxes, interest, gifts to charity and casualty and theft losses. I’ve itemized for several years, primarily due to mortgage interest which is deductible on a maximum of $750,000 of principal and is higher in the early years of a loan’s life. I also deduct $10,000 in Boston real estate taxes and Massachusetts income taxes, plus charitable deductions.  

OBBBA increased the cap on the SALT deduction

The OBBBA, passed in July, increased the cap on the state and local tax (SALT) deduction from $10,000 to $40,000 through 2029. The SALT deduction cap will increase by 1% per year and is subject to phasedowns, starting at $500,000 in modified adjusted gross income (MAGI), that reduce the benefit.  

By $600,000 in MAGI, the cap is back down to $10,000. The Tax Foundation estimates that the new SALT cap will result in a 5% increase in itemizers this year — mostly residents of higher tax states like New York, New Jersey and California.

For me, the higher SALT deduction won’t be enough to offset losing the mortgage interest deduction. But since I moved midyear, I’ll be able to claim half of 2025’s mortgage interest payments on Schedule A. The remainder will be accounted for on Schedule E and reduce the rental income on the Boston condo. This year I’ll itemize, and next year I’ll claim the standard deduction.

Charitable deduction rules have changed for everyone

The new OBBBA rules for charitable deductions present a planning opportunity, as taxpayers have full control over this line-item deduction. They decide how much to give, when and to whom, and then self-report it to the IRS.

For itemizers, a new 0.5% AGI floor will apply starting in 2026. Gifts to charity must exceed this floor to be deductible. If a taxpayer’s AGI is $400,000, for example, and they donate $6,000, they can only deduct $4,000, the amount that exceeds the $2,000 floor (0.5% x $400,000).  OBBBA also caps the benefit of itemized deductions at 35% for those in the 37% marginal tax bracket.  

READ MORE: A ‘new adventure’ for charitable giving, itemizing under OBBBA

Charitable deductions don’t benefit taxpayers taking the standard deduction in 2025. But next year joint filers can deduct up to $2,000 in cash donations in addition to the standard deduction.  To qualify, the donation must be a cash contribution to public charity. Gifts of appreciated stock, gifts to donor-advised funds and donated household items won’t count.

Accelerate giving in 2025 with a donor-advised fund

For itemizers, the basic strategy is to accelerate charitable giving in 2025 to beat the new AGI floor. This can be achieved by bunching expected future donations into 2025 to get the full write-off. Looking at past returns, my charitable giving history is pretty consistent — similar dollar amounts to the same organizations year after year. That gives me a good estimate of how much to donate in 2025 to frontload the next few years of donations.

Advisors in tune with their clients’ charitable and philanthropic goals have a natural opportunity to present the accelerated giving idea and with it, an elegant solution in the form of a donor-advised fund. A DAF is built to facilitate the bunching of gifts into one tax year. The donor gets the upfront deduction for gifts made today because the DAF is itself a charity. Donors can decide later which organizations to support and direct the DAF to make those donations. For example, a $1,000 donation to a DAF in 2025 can be released as $250 annual gifts over four years.   Opening and funding a DAF can usually be completed quickly, but it can vary based on what’s being used to fund the account — cash, stocks, mutual funds, etc. Given high year-end volume to meet the Dec. 31 contribution deadline, it’s prudent to start the process of opening a new DAF by early December.

Beyond cash: Donating appreciated stock

Donating appreciated assets is the most tax-efficient way to go, superior to cash or selling shares and donating proceeds. Given strong recent stock market performance, many people have highly appreciated stocks in their investing accounts. Donating low basis shares in lieu of cash can provide a double tax benefit: It avoids capital gains tax on the appreciation, and the taxpayer can take a charitable deduction equal to the stock’s current market value.

But there is an important detail explained in IRS Publication 526: To get the current market value deduction, the donated shares must be “capital gain property” held for more than one year. If the shares have been held for a year or less, the taxpayer is limited to deducting their cost basis, a considerably lower amount for highly appreciated stock. My total contributions have never exceeded 20% of AGI, but if they did, there are rules that limit deductions based on the type of property gifted and the type of receiving organization.

READ MORE: Avoiding capital gains taxes with highly appreciated stocks

The charitable deduction is the largest itemized deduction, totaling $257 billion and claimed by 80% of itemizers in 2022. I don’t believe taxes are the reason people donate to charity, nor do I believe attitudes will change based on the new rules, but I do think this presents an opportunity for savvy taxpayers and their advisors to refine their charitable giving strategy for 2025. 

A new charitable giving strategy wasn’t on my 2025 bingo card, but I now have ideas about how to handle it, ones I hope will be of use to financial advisors and their clients.