The Tax Cuts and Jobs Act (or TCJA), enacted in December 2017, brought a wave of changes to the tax landscape in which charities and generous givers operate. As several of its provisions are set to expire at the end of 2025 and Congress considers what’s next, NCF is following the developments to see how this might impact your giving.
Here are a few things we’re watching as we wait to see if the TCJA will be extended, replaced, or allowed to expire.
Ordinary income tax rates
The TCJA adjusted the rate tables for individuals’ ordinary income tax, and it reduced the maximum rate from 39.6% to 37%. Counterintuitively, a return to a top rate of 39.6% will mean that donors with a high level of ordinary income may be able to give a bit more and end up at the same net income level. In other words, a charitable deduction that offsets ordinary income taxed at 39.6% will generally have a greater impact than if it offsets income taxed at 37%, allowing certain donors to give more and end up in the same place.
60% charitable deduction limit for cash gifts
Before 2017, the charitable deduction was limited so that it could only be claimed against 50% of a donor’s adjusted gross income (AGI). The TCJA added 10% to that, meaning that a donor who itemizes deductions can deduct up to 60% of AGI if deducting only cash gifts. Without legislative action, 2026 will bring a return to the 50% level.
Certain deductions and the Pease Limitation
The TCJA suspended or limited numerous deductions and eliminated the Pease Limitation. These are set to return in 2026. All else being equal, increasing the number or amount of deductions donors can claim should have the corresponding effect of making more dollars available for their charitable goals. The Pease Limitation reduced total itemized deductions of certain taxpayers by an amount calculated according to a formula. Because of the way the formula worked, this didn’t usually impact donors’ charitable deductions when they also had other deductions. Its return will cause tax preparers and charitable gift planners to refresh their memories on how it works, its impact on the charitable deduction, and whether it impacts a specific donor at all.
Qualified Business Income Deduction
The qualified business income (QBI) deduction allows certain business owners to deduct up to 20% of their qualifying income. This deduction is not only for individuals but for any taxpayers other than corporations. Charities that are organized as trusts are eligible for this when they own pass-through businesses producing unrelated business income that is also QBI. The sunsetting of the QBI deduction would leave the charities that claim it with fewer resources for their charitable activity. It may also have an indirect impact on charities through some donors’ reduced capacity for generosity.
Standard Deduction
The TCJA made up for its suspension of certain personal exemptions and deductions by almost doubling the standard deduction (which is indexed for inflation). In 2025, it ranges between $15,000 and $30,000. Many in the philanthropic community believe that a lower standard deduction, which causes more people to itemize their deductions, actually increases charitable giving by providing an extra incentive to give more. In any event, if a change to the standard deduction lowers the threshold for itemizing charitable gifts, many givers may want to revisit their giving strategy.
Child Tax Credit
The child tax credit was doubled by the TCJA. Reducing it to prior levels could put additional pressure on the finances of families that use the credit, thus pinching their ability to give more generously.
Gift and Estate Tax
The gift and estate tax basic exclusion amount – the amount a person can give to family members and other non-charities without incurring tax – was increased to $10,000,000 (indexed for inflation – $13,990,000 in 2025). This increase is set to sunset at the end of 2025, essentially reducing the exclusion amount to half of the current number. If this happens, people will be able to give less to non-charitable beneficiaries and more estates will be taxable.
Taxpayers who have maximized their exclusion amount are often faced with a question: Whose social programs do they want to support with the remaining portion of their estate – those of the federal government or the specific ones that are near to their heart? Givers with favorite charities often decide to increase the estate (testamentary) gifts to these charities rather than pay more tax. Reducing the gift and estate tax exclusion amount will mean that donors face this question sooner, and they may want to give more to their favorite charities as they update their estate plans.
The TCJA also included provisions that do not sunset. While they’re called permanent provisions, that does not mean they cannot change. There have been rumors through the years that raise the question of whether some permanent provisions will be part of negotiations on a new tax bill. Some that we are watching include:
- The reduction of the corporate tax rate to 21%
- The extension of the carried interest holding period to three years before having long-term capital gain treatment
Sunsetting is automatic. We expect changes at the beginning of the 2026 tax year even if Congress fails to pass a tax bill, and we expect those changes to impact charitable giving. But, we know that givers with NCF give because they have hearts of generosity and desire to see lives reached and restored in the name of Jesus. While we wait, we pray that the changes provide opportunities for even more charitable impact to the glory of God.
