Rev. Proc. 2024-40: Inflation adjustments for 2025 relevant to exempt organizations

The IRS today released Rev. Proc. 2024-40 providing the annual inflation adjustments for more than 60 tax provisions to be used by individual taxpayers on their 2025 returns (that is, the returns that are generally filed in 2026).  A number of these provisions may be of interest to exempt organizations.

• Dues required to be paid to be a member of an agricultural or horticultural organization described in section 501(c)(5) will be treated as not derived from an unrelated trade or business if they do not exceed $207.
• For purposes of defining the term “unrelated trade or business,” the unrelated business income of certain exempt organizations will not include a “low cost article” of $13.60 or less.
• The $5, $25, and $50 guidelines for disregarding insubstantial benefits received by a donor in return for a fully deductible charitable contribution under section 170, as set forth in Rev. Proc. 90-12 (as amplified by Rev. Proc. 92-49 and modified by Rev. Proc. 92-102) will be $13.60, $68.00, and $136, respectively.
• For tax years beginning in 2025, the annual per person, family, or entity limitation to qualify for the reporting exception for nondeductible lobbying expenses under section 6033(e)(3) will be $143 or less.

• The qualified transportation fringe benefit for tax year 2025 will have a monthly limitation of $325 for certain commuter transportation, transit passes, and qualified parking.
• The dollar limitation for employee salary reductions for contributions to health flexible spending arrangements (FSA) for tax years beginning in 2025 is $3,300. For cafeteria plans that permit the carryover of unused amounts, the maximum carryover amount is $660.
• Concerning medical savings accounts (MSAs), for tax year 2025, participants who have self-only coverage in an MSA, the plan must have an annual deductible that is not less than $2,850, but not more than $4,300.
  • For self-only coverage, the maximum out-of-pocket expense amount is $5,700.
  • For participants with family coverage for 2025, the annual deductible may not be less than $5,700 or more than $8,550.
  • For family coverage, the out-of-pocket expense limit is $10,500.

The standard deduction amounts for 2025 will be increased, as follows:

• For married couples filing jointly—$30,000 (an increase of $800 from the prior year)
• For single taxpayers and married individuals filing separately—$15,000 (an increase of $400)
• For heads of households—$22,500 (an increase of $600)

The personal exemption for tax year 2025 remains at $0 (the personal exemption was suspended for tax years 2018 through 2025 by the U.S. tax law enacted in 2017 (Pub. L. No. 115-97, or the law that is often referred to as the “Tax Cuts and Jobs Act” (TCJA)).

For 2025, as in 2024, 2023, 2022, 2021, 2020, 2019 and 2018, there is no limitation on itemized deductions (referred to as the “Pease” limitation under prior law), because that limitation was also suspended by the TCJA for years 2018-2025.  Although the TCJA imposed (or revised) the limit on deductions for individuals relating to state taxes and mortgage interest, the charitable contribution deduction limitation for cash contributions was temporarily increased to 60% of adjusted gross income (from 50%), while other limitations in section 170 were unchanged.

Read a related IRS release—IR 2024-273 (October 22, 2024)

Ruth Madrigal | ruthmadrigal@kpmg.com

Preston Quesenberry | pquesenberry@kpmg.com