Changes to Charitable Contribution Deductions

The new tax legislation, signed on July 4, 2025, introduces several changes to the deductions for charitable contributions. These changes will take effect after December 31, 2025. With the new standard deduction, it is more important than ever to review your charitable giving with your financial advisor. The new bill introduces three key provisions: above-the-line deductions for non-itemizers, new limits on deductions for itemizers in the top tax bracket, and a new floor on deductions for itemizers and corporations. Additionally, there is a new credit for cash donations made to scholarship-granting organizations.

Reinstated Deduction for Non-Itemizers

Starting in 2026, non-itemizers will be able to deduct cash contributions to charities up to $2,000 for married couples filing jointly and $1,000 for single filers. With the new standard deduction amounts of $31,500 for married couples filing jointly and $15,750 for single filers and given that approximately 10% of households claim itemized deductions, it is anticipated that many taxpayers will take advantage of this reinstated deduction, potentially increasing participation in charitable giving.

Cap on Tax Benefits for Itemizers in the Top Tax Bracket

Beginning in 2026, the tax benefit of itemized deductions for taxpayers in the top tax bracket will be capped by reducing itemized deductions by 2/37 of the lesser of (a) the total itemized deductions or (b) the amount by which taxable income exceeds the threshold for the 37% tax bracket. This is applied not only to charitable contributions, but the total effect of the taxpayer’s itemized deduction for those taxpayers in the top tax bracket. Taxpayers in this higher tax bracket may want to consider accelerating any significant philanthropic gifting or other deductible expenses to maximize their deduction under the current rate.

New Floor on Deductions for Itemizers and Corporations

Effective in 2026, those who itemize their deductions will only be able to receive a tax deduction on charitable contributions to the extent that those contributions exceed 0.5% of their adjusted gross income (AGI). For corporations, although deductions are still limited to 10% of the corporation’s taxable income, the Act now establishes a 1% floor on those deductions, which means only those contributions in excess of 1% of the corporation’s taxable income are allowable. Excess contributions, along with the amount disallowed under the 1% floor, are carried over to the next year. Taxpayers should consider the timing and amounts of their giving to maximize their deduction, and corporations should proactively monitor their giving to ensure they exceed the 1% threshold.

New Credit for Donations to Scholarship-Granting Organizations

A new credit will be available beginning after December 31, 2026, allowing taxpayers to take a credit of up to $1,700 for donations made to scholarship-granting charities (SGO), regardless of whether the taxpayer chooses to itemize. Qualified contributions must be used to fund scholarships for eligible students within the state where the organization is listed. The credit is reduced by any state tax credit for the same gift and cannot be double counted as a charitable deduction. The SGO must be state-certified and federally recognized.