Month: October 2025

Since 2018, taxpayers have enjoyed significant tax benefits by investing capital gains in Qualified Opportunity Funds (QOFs). QOFs channel money into Qualified Opportunity Zones (QOZs)—government-designated low-income census tracts. Investors have embraced the program, pouring in more than $160 billion.

The program was set to expire in 2026. However, the One Big Beautiful Bill Act (OBBBA) made the program permanent and adjusted the tax benefits.

New Rules Beginning in 2027

Starting in 2027, you can invest in a new set of QOZs that meet stricter low-income standards. Expect about 25 percent fewer QOZs than under the original program. 

Also, in 2027 and 2028, you can invest in the original QOFs and obtain the new QOF treatment. 

When you invest capital gains in a 2027-or-later QOF, within 180 days you unlock four major tax benefits:

1. You avoid tax on your capital gains for five years.
2. You get a 10 percent step-up in basis at the five-year mark, which eliminates 10 percent of your taxable gain.
3. You owe no tax on the appreciation of the QOF, as long as you hold the QOF investment for 10 years before selling.
4. You may keep your investment for up to 30 years and still avoid capital gains tax on any appreciation through the end of that year.

Qualified Rural Opportunity Funds

The OBBBA also created a new vehicle: the Qualified Rural Opportunity Fund. These funds must invest at least 90 percent of their assets in rural QOZs. If you invest capital gains in one of these funds, you gain a 30 percent step-up in basis after five years.

QOZ 1.0: The Original Program

The original QOZ program remains in effect through 2026. If you invest in 2025 or 2026, you defer tax on your capital gains only until December 31, 2026, when you must pay the tax on your 2026 return. You also lose the five-year, 10 percent step-up in basis. 

Still, the most powerful benefit remains: you owe no tax on appreciation if you hold the investment for 10 years. You can even hold it through December 31, 2047, without paying tax on appreciation.

A Word of Caution

Treat QOF investments with care. Before you commit money, make sure you feel confident about the fund’s management team, investment strategy, projected returns, and fees.

If you have any questions about QOFs, please call me directly at 408-778-9651

• By Leon Clinton
• October 31, 2025

If you’re age 70 1/2 or older, the IRS allows you to make charitable contributions directly from your IRA to approved organizations, such as your church. 

These transfers, known as qualified charitable distributions (QCDs), have become even more powerful under the new One Big Beautiful Bill Act (OBBBA)—and could be one of the most effective ways to give.

How QCDs Work

A QCD allows you to transfer funds directly from your IRA trustee to a qualified charity. The money never touches your hands, and the transfer is wholly excluded from your taxable income. While this means you cannot claim the gift as an itemized deduction, you don’t need to—because avoiding taxation is the best. It’s far better than a 100 percent deduction.

For 2025, the annual QCD limit is $108,000 per person. If both you and your spouse have IRAs, each of you may contribute up to that amount separately.

Tax-Saving Advantages

QCDs provide you with many distinct benefits, including the five below:

1. Lower taxable income. Unlike regular IRA withdrawals, QCDs do not increase your adjusted gross income (AGI) or modified AGI (MAGI). This helps you stay out of higher tax brackets and avoid triggering phaseouts of other deductions and credits.
2. Avoid new OBBBA restrictions. Starting in 2026, the OBBBA reduces itemized charitable deductions by floors and limits tied to income levels. QCDs are exempt from these rules.
3. Meet required minimum distributions (RMDs). If you are age 73 or older, QCDs can count toward your annual RMD, allowing you to satisfy the requirement without adding taxable income.
4. Preserve other tax breaks. By keeping AGI and MAGI lower, QCDs can help you avoid Medicare premium surcharges, the 3.8 percent net investment income tax, and the loss of valuable deductions such as those for state and local taxes.
5. Estate planning benefits. QCDs reduce the size of your taxable estate, potentially lowering future estate tax exposure.

Takeaway

If you are charitably inclined and have reached age 70 1/2, QCDs may be your path to give generously and cut your tax bill. The OBBBA makes them even more attractive in 2025 and beyond.If you want to discuss QCDs, please call me directly at 408-778-9651  

• By Leon Clinton
• October 28, 2025

If you’ve ever suffered damage or theft from an event like a flood, fire, or burglary, you may wonder if you can claim a tax deduction for your loss. 

Unfortunately, the rules for personal casualty and theft loss deductions remain very restrictive, even after the recently enacted One Big Beautiful Bill Act (OBBBA).

Current Rules (2018–2025)

Through 2025, you can deduct personal casualty or theft losses only if they stem from a federally declared disaster. This means the president must formally declare the event severe enough to warrant federal assistance. Even then, two key unfavorable reductions apply:

1. You must reduce the uninsured loss by $100.
2. Then you must reduce the remaining loss by 10 percent of your adjusted gross income (AGI).

Only what’s left can be claimed as an itemized deduction on your return. If you don’t itemize, you get nothing. These rules often wipe out smaller claims.

OBBBA’s Small Win

The OBBBA made the federally declared disaster requirement permanent but added one modest improvement. Starting in 2026, you can deduct losses from state-declared disasters—events recognized by your state’s governor as severe enough to qualify. While this doesn’t help today, it broadens relief beginning in 2026.

Other Important Points

If you have casualty gains (insurance proceeds exceeding the tax basis of damaged property), you may offset those gains with personal casualty losses, regardless of whether the event was federally or state-declared.

Special timing rules allow you to claim losses from federally declared disasters in the year before the loss occurred, sometimes producing a better tax result. This rule, however, does not apply to state-declared disasters.

Business casualty or theft losses follow different rules. They are fully deductible, with no $100 reduction, no 10 percent of AGI rule, and no disaster declaration requirement.If you want to discuss casualty or theft losses, please call me directly at 408-778-9651 

• By Leon Clinton
• October 24, 2025