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Now on to the podcast. New tax laws are on the horizon, and they could change the way you give. Hi, I'm Rob West. The new One Big Beautiful Bill Act introduces shifts that could influence your charitable strategy both now and in the years to come. Today, Bruce McKee is here to help us understand what's changing and how to respond wisely.
Then it's on to your calls at 800-525-7000. That's 800-525-7000. This is Faith in Finance, biblical wisdom for your financial decisions.
Well, our guest today is my friend Bruce McKee, attorney and senior vice president of complex gifts at the National Christian Foundation, a valued underwriter of this program. Bruce, great to have you with us. Thanks, Rob. It's wonderful to be here. Bruce, this new law, the One Big Beautiful Bill Act, sounds cheerful by name, but it carries some serious implications for givers.
So why don't we start with just a quick overview of what it actually does? Sure.
Well, beauty is in the eye of the beholder for sure. And that applies to this bill as well, which I'll refer to just as the OBA.
Okay. It had a whole lot of provisions in it, many of them even beyond just tax. And depending on your own perspective, whether it's tax provisions or not, some of those provisions looked beautiful and some didn't. But I'd say the biggest thing it did was to make permanent many provisions that were scheduled to sunset at the end of 2025 under the last tax act, that 2017 Tax Cuts and Jobs Act.
So a couple of those. Are keeping the increased standard deduction and estate tax exclusions. uh both of which can affect giving strategies. Yes. Uh and and then the OBA also introduced new deduction floors for charitable gifts and a new limit for itemized deductions.
And then it extended certain business deductions and also set some new rules for university endowment taxes. Interesting.
Well, there's a lot there. Let's begin with the update to the standard deduction, because this is what affects probably 90% of taxpayers.
So what changed and what could it mean for charitable givers specifically? Sure, this is a provision that was subject to that sunset.
So it was going to drop back down to a lower amount at the end of this year. But the OBA made it permanent and even actually boosted it for even this year's taxes.
So for this tax year, twenty twenty five, For filing that individuals will do by this coming April, the standard deduction increases to $15,750 for individuals and then $31,500 for joint filers.
So the result of this higher standard deduction continuing on at that higher level and even a little boosted. fewer taxpayers will just itemize. We saw this after that twenty seventeen bill. It really pushed the percentage of taxpayers itemizing down very significantly.
So, what that means then, of course, is that fewer people are itemizing, so fewer people can deduct charitable gifts since those are itemized deductions. Yeah. And of course, people make their charitable gifts not just for a tax deduction, sure. The deduction is what Congress has included to create greater incentives for giving. It means that you can give more.
than you would otherwise be able to.
So, givers who use the standard deduction after that 2017 Act, this came out, and this will continue, they may want to use a strategy that we call bunching. which is grouping multiple years of gifts into one year. In order to push you up above beyond that standard deduction, so that you itemize deductions in that year, but then not the others. And if you do that, For us at NCF, especially, this can be paired with opening a giving fund to ultimately manage those gifts so that you can make your grants out to various charities over those intervening years. Yeah, boy, I can't underscore that enough.
Folks, open your giving fund when you head to faithfy.com slash NCF. It's like a charitable checking account, a fabulous tool for giving and using this bunching strategy also for giving appreciated assets. We can't underscore that enough, Bruce. Just the wisdom and the effectiveness of this tool called the Donor Advised Fund, so many uses, right? Yes.
Oh, absolutely. It's. It really is a powerful tool, and a lot of people are continuing to see how powerful it is. Yeah, and when you put those funds in there, I mean, of course, the big idea is to get it out into kingdom advancing causes. But while it's there, especially if you use a bunching strategy, you can even invest it and the returns go right back into the account.
And then you can grant them out to those ministries, your church, or charities that you select. Bruce McKee is here today, Bruce's attorney and senior vice president of complex gifts at the National Christian Foundation. We're talking about the one big, beautiful bill and what it means for you and your giving. Much more to come just around the corner. Stick around.
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We want you to plan wisely, act intentionally, and trust God to multiply every gift for his kingdom. You know, the one big, beautiful bill is now in place. It's the law. We want to help you understand what that means for your taxes and specifically your giving. To help us do that today is Bruce McKee, Bruce's attorney and senior vice president of complex gifts at the National Christian Foundation, a valued underwriter of this program.
If you'd like to learn more or open your giving fund today, that's a donor-advised fund, which we've said is a powerful giving tool, just go to faithphy.com/ncf. That's faithfi.com/slash ncf. Bruce, before the break, we were talking about some of the changes, starting with the update to the standard deduction.
Now, I understand, and you mentioned this, that the one big, beautiful bill act, the law. Introduces new floors for charitable giving.
So, what exactly are those and when do they take effect? Yeah, let me start by defining a term here, defining adjusted gross income.
Okay. Without getting into all the details of it. Adjusted gross income, or what we call AGI, is all of your income reduced by all of your above-the-line deductions, things like student loan interest, retirement contributions, or health savings account contributions made during the year.
So, this includes your wages, it includes investments, it includes business income, all of that, less a few of these deductions. But then, after that, your itemized deductions come out. Later, and those are where charitable deductions happen.
So, this is the new floor that they've introduced, beginning with charitable gifts made in 2026. Only the amount of gifts above a half a percent, 0.5% of your adjusted gross income, your AGI for individuals is deductible.
So if your AGI for a given year, just to use a round number, if your AGI is 200,000, that would mean that the floor applies to the first $1,000 of your charitable giving.
So whether you gave Twenty thousand or forty thousand of charitable giving that year, you would lose. One thousand of that amount from a deductibility standpoint.
Okay. So for corporations that give. In addition to, right, we've got two floors, really, one for individuals, the other for corporations. And that floor is 1% of their taxable income.
So it just means that that slice for either of those, the half a percent slice for individuals or the 1% slice for corporations, is just no longer deductible.
Okay. Since it starts in twenty twenty six, although it's not a massive percentage, it's really quite small. But if you are thinking about giving, especially if your AGI is going to be large next year, We'd really encourage you to make those gifts before the end of this year, before the end of 2025, since the floor doesn't apply at all to gifts made this year. And then in future years, we'd strongly recommend that you meet with your financial advisor, who may suggest looking ahead to see what years might be higher AGI years, whether you have a sale of a business or something like that.
So that you can then get your gifts in. earlier years to minimize the effect of that floor.
So interestingly Since the Tax Cuts and Jobs Act, we've had bunching for the non-itemizers. But now even Itemizing donors may benefit from sort of strategic bunching in alternate years, depending on what their AGI is going to be. Yeah, bunching again is if you have the capacity to do all of your giving in one year, let's say into a donor advised fund, you do that and then you give it out over time or grant it out over time and maximize the tax benefits available to you. All right, for those high-capacity givers, Bruce, what about deduction limits where they're really wanting to give a maximum amount of their income away? Are we seeing changes there as well?
Yeah, we sure are. One, I'll say thankfully, the OBA made the 60% of AGI limit for cash gifts now permanent, rather than letting that one sunset back to the 50% total limit that existed before.
So that's a good thing. But there's a new limit that was introduced as well, and this is on itemized deductions generally. This isn't just on charitable gifts, but that aggregate of all of your itemized deductions, including things like state and local taxes and mortgage interest deductions.
So, a quick explanation here of what's going on. The highest tax bracket is the 37% bracket. That would have that would have sunset it before and put us back into a a higher bracket, but that was made permanent.
So that's the highest permanent bracket.
So any income over a certain amount, every year that amount changes, is in that thirty seven percent bracket. Itemized deductions then offset that highest bracket income first.
So it means that those deductions are worth 37 cents for every dollar, since that would have otherwise been the tax cost. This new limit on itemized deductions, what I call the 237th haircut, reduces that effect so that those deductions in that highest bracket of income. are now worth only 35 cents. For every dollar. Again, like the floors, it's not a huge amount, but it results in a slightly higher tax bill.
And like the floors, this haircut also goes into effect for tax year 2026.
So that's just one more reason to give this year. If you're trying to decide between a gift this year or next, and in the future, it will require some additional planning between givers and their advisors. Especially for high-income donors. Yeah, that makes a lot of sense. Great reason to really make sure you're thoughtful about your giving here before we close the books on 2025.
Now, you also mentioned, Bruce, that the law touches estate and gift taxes. This is always a really important question for folks.
So, what are the key changes there? Yeah, the estate and gift tax exemption is the amount of an individual's estate that can be transferred to their heirs tax-free. That exemption amount rises under the OBA to $15 million for individuals and $30 million for married couples. Again, primarily making permanent what had been scheduled to sunset back to about half that amount as of 2026 under that Tax Cuts and Jobs Act.
So now long-term estate planning can really proceed with more confidence due to these permanent thresholds. But there I will make one note as well on permanence. The laws, of course, can be changed. But the old law that had been passed in 2017 had those sunsets built in. Yeah.
We call these permanent now because it requires an affirmative vote. To change these amounts rather than simply allowing them to expire back to the earlier levels. And we found that when individuals settle their estate planning, it often helps them focus where their hearts are called by God to give, which then often encourages them to, in the words of Ron Blue, start giving while they're living so they're knowing where it's going. Right. And within that estate planning, charitable trusts and family foundations can also benefit from this greater predictability.
That's really helpful. Just about a minute left, Bruce. For listeners who don't itemize their deductions, the above-the-line charitable deduction is returning. How does that work this time around? Yeah, this time it'll be $1,000 for an individual, $2,000 for couples, for non-itemizers for their cash gifts to churches and public charities, which is a a great thing to bring those folks in for more incentive for giving.
Yeah, boy, that was so helpful. We covered a lot of ground today. Bruce, really appreciate your time. Thank you, Rob. We at NCF are always happy to join you.
Well, we love our partnership. That's Bruce McKee, attorney, senior vice president of complex gifts at the National Christian Foundation. Folks, let me encourage you: if you're planning your year-end giving, a giving fund with NCF can help you maximize your generosity and steward God's provision wisely. Open one today. It'll only take three minutes.
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Investing involves risks, including possible loss of principal. Uh Hey, thanks for joining us today on Faith and Finance. We've got two lines open. You can call right now: 800-525-7000. Let's go to Ohio.
Hi, Valerie. Go ahead. Thank you. I'm trying to find out if it makes sense. We have a two-story house.
We are about to turn 68. Need a one-story house. Um we've been looking for new construction and they're all it would come to the point where we'd either have to get a small mortgage loan to make up for what we get out of our house Or we could draw some fifty to sixty thousand out of our four hundred one K. My husband and I have an income, he's on Social Security, gets about $3,000 a month, and I would bring in about $2,000 a month with mine.
So we'd have no problem making it month to month. Got it. All right. First of all, I would say it's a big picture here, Valerie. It's great that you're in a good position with your home paid off, a steady income.
It sounds like a wise lifestyle decision to downsize to that one-story place that you can perhaps stay in for quite a long time. You know, I'm not a big fan of. Taking from the 401. The withdrawals are going to come out as ordinary income, which could put you up into a higher tax bracket. It could increase your Medicare premiums, what's called Irma.
And then it reduces future retirement income because once that money is withdrawn, it stops growing. And if you take a large lump sum, it could trigger 20 to 30 percent in combined taxes.
So I would say that's best if you only need a small amount, let's say a very small amount, less than 10,000. I think I'd prefer, especially with your consistent cash flow, to keep those retirement funds intact and the growing tax-deferred compounded growth inside that plan, as long as those payments will be manageable within your current income and you're going to have to run that budget to make sure. And if you itemize, most people don't, but if you did, you could deduct that mortgage interest. But in either case, I think that's my preferred option, unless we're talking about something fairly small.
Okay, that makes sense. Yeah, we are thinking fifty to sixty houses have just got so expensive. It's wild.
So we've been trying for two years to find something that we wouldn't be in the situation like where I've had to ask the question.
So I really appreciate your guidance.
So we'll we'll sit down with a financial a mortgage lender and see what What we could do. Yeah, sounds good. And our friends at Movement Mortgage, you know, I'd get three bids, but our friends at Movement, they're led by believers, they're nationwide, and they're longtime partners of ours here at Faith Phi.
So you can go to movement.com/slash faith if you want to look at that as one possible option. Thanks for your call today. Call anytime. All right, let's try to sneak in one, perhaps two more phone calls to Ohio. Agnes, go ahead.
Hello there, God bless. Yes, my question is in reference. You had a man on a few weeks ago that was discussing home equity line of credits and also, I think, kind of like a locked in mortgage rate reversal. I don't know what the term is. Home equity conversion mortgage.
Yeah, reverse mortgage. Yes. Home equity conversion mortgage. I'm 73 years old, single, only live in office Social Security. My credit rate is like 8.
I have no debts other than a charge card monthly.
So I approached the bank to try to discuss which one of those would be a better option for me, just so I have some money, so I can, quite honestly, help people instead of waiting till I pass away and then whoever gets my house would spend it the way they want to. I'd like to kind of spend it the way I want to before I die. Yes, yes.
Well, I certainly understand. And you're sitting on your largest asset. And this is where, and especially just because these products were not what they are today one or two or three decades ago, and they got a bad rap for good reason. But I think the home equity conversion mortgage of today, although there are plenty of expenses and you are going to have interest on it, it's a different product. Number one, it's non-recorded.
Debt, meaning you're not personally guaranteeing it. The only collateral is your home. Number two, you can live in there as long as you want until you sell it or pass away. And then whatever is left in terms of home equity is available for you to do what you want with through your estate plan. Could go to your heirs, could be given away to ministry or charity.
And so, you know, for folks that say, listen, I want to get out of debt completely and stay there. Great. The Bible has clear warnings around debt in scripture. But for others, they get to this season of life. And like you, Agnes, they've, you know, lived generous lives.
You know, they've tried to save. They have some modest savings, but they're basically living off of a very small fixed income, Social Security alone. They can balance their budget. You know, they're not complaining, but they're saying, I just don't have any wiggle room here. And if something comes out of left field or I want to give some money away, I can't do that.
But I'm sitting on this asset that I own free and clear. I can't touch it. And that's where I think these home equity conversions mortgages shine. Because if you're 62 or older, You can tap into that home equity. You don't pay any tax on it.
It's your money. And it could come out either as a monthly income stream or a line of credit. The payment is always optional.
Now, whatever you take out will grow over time with the interest rate that's just about what the current interest rates are. It's going to be variable and then some fees on top of that. But the idea that you would have this ability to access some of that cash to do what you want within this fourth quarter of life, and it's just going to perhaps slightly reduce, because remember, your home's going to continue to appreciate. Most homes do.
So it'll slightly reduce what's available for you to either pass on to heirs or give away at death, but you're going to be able to enjoy it now. A lot of folks say, why wouldn't I do that? And I would tend to agree. And so I think that is the option here. Is that what you were looking for?
Yes, because my bank is trying to encourage the HELOC, and I really kind of my gut is like really not settled easy with that. I feel the second the second one that we're talking about, the Reverse mortgage? Is that the term? That's right. Yes, ma'am.
That's the one that my spirit is more drawn to.
Well, the nice thing about it is that payment is optional, whereas with that home equity loan that you get from your bank, you're going to have a monthly payment. And you know, your finances, I'm hearing, are already tight.
Now we're just adding an additional expense on it. And if you can't pay it because something happens, now your home is at risk. Because it's, you know, you've got to make that payment every month or they could foreclose. Whereas with the home equity conversion mortgage, you never own a payment. And then, and even if your home lost value, which homes rarely do, the FHA is guaranteeing the loan.
So you can live there as long as you want, and you'd owe nothing more than the collateral of your home over time. Yeah, I kind of want to make it so that I can actually invite people that are struggling in for short-term living to help them get to the next place they need to go.
So, you know, I just like, oh, I want to help more. And I have this value. I have no debt. I'm good with my money. I do live off of Social Security, but I'm abundantly living because God truly is my sufficiency in all things.
I love it.
Well, just go to movement.com/slash faith or hold the line, and our team will get somebody in touch with you. God bless you, Agnes. Hey, a big thanks to my team today: Sandy Dickinson, Devin Patrick, and Jim Henry, and everybody here at Faith Buy. Lord bless you, and we'll see you tomorrow. Bye-bye.
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