The Income Tax and the Charitable Deduction

1. Overview of Charitable Contribution Deductions:

   • Charitable contributions are deductible under Section 170 of the Code, provided they are made to qualified 501(c)(3) organizations. 26 U.S.C. § 170.
   • Deductions are itemized on Schedule A (Form 1040), meaning taxpayers must forgo the standard deduction to claim them. As the standard deduction has recently significantly increased, there are many fewer*
   • *NEW: The TCJA significantly increased the standard deduction for individuals beginning in 2017. Internal Revenue Code Section 63(c)(7)(A), as amended by Section 11021 of the TCJA.[1] The increased standard deduction was scheduled to expire in 2025.[2]R.1. makes permanent the standard deduction increases under the TCJA and further increases the amount of the deduction. For tax year 2025 and beyond, adjusted for inflation, the standard deduction is $31,500 for joint filers and surviving spouses, $23,625 for heads of household, and $15,750 for single persons and married persons filing separately. I.R.C. Section 170(p), as amended by Section 70424 of H.R.1. Because of this higher standard deduction, fewer taxpayers will be eligible to itemize deductions, making the universal charitable deduction more relevant.[3]
   • *NEW: H.R.1. reinstates the temporary charitable deduction for non-itemizers (first introduced in the CARES Act of 2020 and extended by Congress in 2021) beginning in 2026. 3548, 116th Cong. (2020).[4] H.R.1. also increases the $300 ($600 for joint filers) cap on the deduction to $1,000 ($2,000 for joint filers). I.R.C. Section 170(p), as amended by Section 70424 of H.R.1. This new deduction could allow charitable deductions for about 100 million people who would not otherwise be eligible.[5]
     • There are several limits:
       • Gifts must be of cash—no donations of property or gifts of assets such as stock.[6]
       • Gifts must be to qualified charities—not to donor-advised funds or supporting organizations.[7]
     • Result:
       • This deduction will reduce a filer’s taxable income, but not[8]

2. Qualified Organizations:

   • • • Contributions must be made to IRS-recognized entities, such as:
         • Religious organizations
         • Educational institutions
         • Public charities
         • Private foundations (subject to stricter limits)
         • Nonprofit volunteer fire companies and civil defense organizations.
       • Donations to individuals, political campaigns, or non-qualified entities are not
       • You can find charitable organizations that are eligible to receive tax-deductions. See Part V, item 11 below.

3. Deduction Limits Based on Adjusted Gross Income (AGI):

   • • • Cash Donations: Generally deductible up to 60% of AGI for public charities. This limit was set to revert to 50% in 2026 due to the expiration of provisions under the TCJA, but H.R.1. makes permanent the 60% AGI limit for cash contributions, thus allowing cash gifts to public charities to be deducted up to 60% of AGI for itemizers.[9]
       • Appreciated Property (e.g., stocks, real estate): Limited to 30% of AGI. Also note tricky rules for donation of tangible property to charities where gifts can be limited to the donor’s tax basis.
       • Contributions to Private Foundations: Typically capped at lower percentages, such as 20% or 30% of AGI.
       • Excess contributions can be carried forward for up to five years.
       • Split-Interest Trusts: A donor can get an income tax charitable deduction for the calculated charitable value of a trust split with non-charitable persons (see brief discussion in section III. Estate Tax, above). Charities push these trusts, and it can be attractive to give appreciated stock or other assets to them. But real complications attach to them—especially in the areas of tax reporting and compliance, including accounting to the New York Attorney General’s Office.

4. Substantiation Requirements:

   • • • Donations of $250 or more require written acknowledgment from the charity, detailing the donation amount and whether goods or services were received in return.
       • Non-cash donations exceeding $500 must be reported on IRS Form 8283. IRS Form 8283.[10] Contributions over $5,000 require a “qualified appraisal.”

5. Special Rules for Certain Contributions:

• • Qualified Charitable Distributions (QCDs):
    • • Taxpayers aged 70½ or older can make direct transfers—“Qualified Charitable Distributions” (QCDs)—from IRAs to charities, up to $100,000 annually. These distributions count toward IRA required minimum distributions and are excluded from taxable income, but cannot be claimed as income tax deductions.

Planning Tip: For older clients with IRAs, this is a highly tax-efficient way to make gifts—especially for non-itemizers. Problem: QCDs cannot be made to donor advised funds or private foundations.

• • Goods and Services Received:
    • The deductible portion of a contribution is reduced by the fair market value of any goods or services received in exchange (e.g., charity dinner tickets).

6. New Floors and Caps:

• • NEW: Effective in 2026, H.R.1. introduces a floor on deductibility of charitable contributions for individuals who itemize.[11] For these individuals, charitable deductions are only allowed for contributions exceeding 0.5% of the taxpayer’s contribution base—generally, their AGI.[12] This means that small donations are no longer deductible unless the total giving surpasses this 0.5% threshold.[13] This floor does not apply to the reinstated deduction for charitable contributions for persons who do not[14]
    • Example—a couple who itemizes and has $225,000 of AGI cannot deduct $1,125 or less in charitable donations.[15]
  • NEW: Effective for tax years beginning in 2026, donations by corporations will be deductible only to the extent that they exceed 1% of the corporation’s taxable income. Internal Revenue Code Section 170(b)(2)(A), as amended by Section 70426 of H.R.1. As the 10% cap on corporate charitable contribution deductions (originally created by the Revenue Act of 1936[16]) remains unchanged, “H.R.1 creates a deductibility window for corporations,” permitting deductions only for donations that exceed 1%, but do not exceed 10% of taxable income.[17]
  • NEW: H.R.1. reduces the tax benefit for large donors in the top bracket of income taxpayers; taxpayers in the highest income tax bracket can only claim a deduction for charitable gifts at an effective rate of 35%, down from the previous 37% top marginal tax rate—so, the donor’s income tax savings will be capped at $0.35 for each dollar contributed. Internal Revenue Code Section 170(b)(2)(A), as amended by Section 70111 of H.R.1.
  • Need to decide whether to accelerate contributions into this year—donors might want to accelerate gifts into 2025 to avoid the new haircuts on itemized charitable deductions, especially if they’re in the top tax bracket—make contributions on a normal schedule, or defer them into next year. Giving strategies will depend on individual circumstances.[18]

7. Strategic Giving Techniques: (note that two of the best strategies involve giving assets other than cash)

• • Bunching Donations:
    • Taxpayers can “bunch” multiple years’ worth of donations into one year to exceed the standard deduction threshold and maximize itemized deductions.
    • Gifts of appreciated property can be one of the most advantageous charitable gifts.

Planning Tip: If you have a client with corporate stock worth $50,000 which the client bought for $5,000 (his “tax basis”), a gift of stock is highly tax-efficient, because the hidden gain of $45,000 is not taxable as income. Professor Chirelstein views this favorable feature as an oversight in the enactment of the original tax law that became enshrined as rich donors and charities got to like the deductions so much.

• • Bunching Charitable Gifts under H.R.1. Tax Changes:
    • Since itemizers lose the deduction for the first 0.5% of AGI in charitable gifts, bunching into years with higher total gifts can help offset this hurdle and increase the value of their itemized deductions—making total gifts large enough in the “bunched” year so the ineligible portion becomes a smaller percentage of your overall deduction. To avoid the loss of deduction for the 0.5% AGI floor, consider accelerating gifts into 2025 or the next optimal bunching year.[19]
    • Donor-Advised Funds (DAFs): Donors can use a DAF to bunch gifts for deduction purposes, then grant funds to charities over subsequent years.[20]
    • Above-the-Line Versus Itemized Deduction: If your giving won’t exceed the elevated standard deduction—even with bunching—take advantage of the new above-the-line charitable deduction ($1,000 single/$2,000 joint).[21]
      • Only gifts to qualifying public 501(c)(3) charities (not DAFs or private non-operating foundations) count for the above-the-line deduction.[22]

8. New School Scholarship Credit:

   • Starting in 2027, H.R.1. offers a federal tax incentive that is, “essentially a federal school choice option which allows individuals to make tax-favored contributions to organizations providing scholarships to students so they can attend private or religious elementary and secondary schools.”[23]
   • In states that decide to opt in, “individuals will get a dollar-for-dollar tax credit up to $1,700 when they give to a nonprofit that offers education scholarships. They could then use that money for tuition and other educational expenses, including for private or religious schooling.”[24]
   • There is no income limit; anybody can make this contribution, and anybody can get this tax credit.[25] There are some high-income limits on who can get scholarships to help pay for private school.[26]

 

[1] USA Facts, How has TCJA impacted individual income taxes?, July 1, 2025, https://usafacts.org/articles/how-has-tcja-impacted-individual-income-taxes/. These changes significantly reduced the percentage of individuals claiming itemized deductions. In 2017, approximately 31% of filers itemized deductions; in 2022, this percentage was only 9.5%. In that same timeframe, the portion of returns claiming the standard deduction grew from 69.4% to 90.5%.

[2] Barclay Damon LLP, One Big Beautiful Bill Act Changes Tax Incentives for Charitable Giving, July 9, 2025, https://www.barclaydamon.com/alerts/one-big-beautiful-bill-act-changes-tax-incentives-for-charitable-giving.

[3] Akron Community Foundation, Understanding the One Big Beautiful Bill Act: Three Insights for Philanthropy (July 7, 2025), https://www.akroncf.org/story/understanding-the-one-big-beautiful-bill-act-three-insights-for-philanthropy/.

[4] The CARES Act of 2020 introduced a temporary charitable deduction for non-itemizers, allowing them to deduct up to $300 for cash contributions to eligible charities in 2020. Consolidated Appropriations Act, 2021, Pub. L. No. 116-260, 134 Stat. 1182 (2020). Congress extended this deduction in 2021 and increased the amount of the deduction for joint filers to $600. This temporary measure expired at the end of 2021.

[5] Laura Saunders, Get Ready for New Rules on Tax Breaks for Charitable Giving, Wall Street Journal (July 25, 2025, 5:30 am ET), https://www.wsj.com/personal-finance/taxes/new-tax-breaks-charitable-donations-e7e0dd91?mod=RSSMSN.

[6] Id.

[7] Id.

[8] Id.

[9] PG Calc, One Big Beautiful Bill – The More Things Change… (July 12, 2025), https://www.pgcalc.com/insight-training/pg-calc-featured-articles/OBBB-The-More-Things-Change. Before 2018, the income tax charitable deduction was limited to 50% of AGI for gifts of cash and 30% for gifts of appreciated property with a five-year carry forward for unused deductions. “The TCJA increased the 50% AGI limit for cash contributions to 60%, but, like many other provisions in TCJA, the higher limit was set to revert to 50% at the end of 2025.”The 30% limit on gifts of appreciated property and the five-year carry forward for unused deductions are unchanged by either OBBB or TCJA.

[10] Noncash Charitable Contributions, IRS Form 8283 (Rev. Dec. 2024), https://www.irs.gov/forms-pubs/about-form-8283 (last visited May 29, 2025); Instructions for Form 8283, Noncash Charitable Contributions, Internal Revenue Serv., https://www.irs.gov/instructions/i8283 (last visited May 29, 2025).

[11] Akron Community Foundation, Understanding the One Big Beautiful Bill Act: Three Insights for Philanthropy (July 7, 2025), https://www.akroncf.org/story/understanding-the-one-big-beautiful-bill-act-three-insights-for-philanthropy/.

[12] Akron Community Foundation, supra note 8.

[13] Barclay Damon LLP, One Big Beautiful Bill Act Changes Tax Incentives for Charitable Giving, July 9, 2025, https://www.barclaydamon.com/alerts/one-big-beautiful-bill-act-changes-tax-incentives-for-charitable-giving.

[14] Id.

[15] Laura Saunders, supra note 10.

[16] Revenue Act of 1936, ch. 690, § 23(q), 49 Stat. 1648, 1658 (1936).

[17] Barclay Damon LLP, , supra note 7.

[18] Laura Saunders, supra note 10.

[19] Id.

[20] Jeff Zysik, The Bunching Strategy for Charitable Giving, Donors Trust (Aug. 26, 2019), https://www.donorstrust.org/bunching-strategy-charitable-giving/.

[21] Laura Saunders, supra note 10.

[22] Bailey H. Cull, OBBBA Solidifies High Estate Tax Exemptions and Charitable Giving Changes, Goodwin Law (July 9, 2025), https://www.goodwinlaw.com/en/insights/publications/2025/07/alerts-practices-tax-obbba-solidifies-high-estate-tax-exemptions.

[23] Tyler Morning Telegraph, Penney: Big, Beautiful Charitable Changes (July 13, 2025), https://tylerpaper.com/2025/07/13/penney-big-beautiful-charitable-changes/.

[24] PBS NewsHour, How a ‘big, beautiful bill’ provision could accelerate a shift toward private education (July 14, 2025), https://www.pbs.org/newshour/show/how-a-big-beautiful-bill-provision-could-accelerate-a-shift-toward-private-education.

[25] Id.

[26] Id. Laura Meckler: “For instance, here in Washington, D.C., anyone earning up to, say, $450,000 a year would qualify. So it really does cover the vast majority of families.”