Get Ready for New Rules on Tax Breaks for Charitable Giving
Summary of an article by Laura Saunders of the Wall Street Journal on 7/25/25
The One Big Beautiful Bill Act introduces changes to charitable donations starting in 2026, aimed at modifying tax breaks for donors.
Key highlights include:
- **Increased Deductions for Non-Itemizers**: Donors who do not itemize deductions can now claim up to $2,000 for married couples and $1,000 for singles, benefiting around 100 million additional people.
- **Limits on Itemized Deductions**: For those who itemize, there’s a new disallowance of 0.5% of adjusted gross income, and top-bracket taxpayers will have their deductions capped at 35% instead of 37%.
- **Planning Considerations**: Donors should evaluate whether to accelerate or defer contributions based on their tax situation, especially those in higher tax brackets.
- **Qualified Charitable Distributions (QCDs)**: Individuals aged 70½ or older may benefit from QCDs as a tax-advantaged way to donate without being affected by new limits.
- **Donation Requirements**: Deductions for non-itemizers apply only to cash gifts to qualified charities and do not include asset donations or gifts to donor-advised funds.
- **Charitable Deductions for Non-Itemizers**: Donors who do not itemize can claim a $2,000 deduction for married couples and $1,000 for others, limited to cash donations to qualified charities.
- **Impact on AGI**: This deduction reduces taxable income but not adjusted gross income (AGI), affecting other tax provisions tied to AGI.
- **0.5% Disallowance**: A threshold disallows a portion of itemized charitable contributions equal to 0.5% of AGI. For instance, a couple with $225,000 AGI can only deduct a portion of their donations based on this limit.
- **Bunching Donations**: Donors may benefit from grouping charitable donations every few years instead of annually to maximize their tax benefits.
- **Top-Bracket Taxpayer Limits**: High-income filers will see limited benefits for itemized deductions at a rate of 35% instead of 37%, especially impacting charitable donations.
- **Tax Savings for Top Earners**: A joint-filing couple with $900,000 AGI donating $100,000 may see a decrease in tax savings due to the 0.5% disallowance and deduction limits.
- **Donor-Advised Funds (DAFs)**: DAFs can allow for larger contributions that provide full deductions for a given year, with smaller distributions made over time.
Overall, these changes are permanent until further amended by Congress, making early planning essential for maximizing tax benefits related to charitable giving.
Please download the full WSJ article here
