Tax Tip as to Charitable Contributions for Individuals After the Passage of the 2025 Tax Act

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Charitable contributions have been a part of the Federal Income tax law for many years.  This area of charitable deductions for federal income tax purposes was expanded for individuals under the One Big Beautiful Bill Act of 2025 (2025 Act).

Because of the many changes under the 2025 Act, it is worthwhile considering a few of these changes, especially considering the filing of tax returns for 2025 for individuals.

Tax Deduction for Gifts to Charities:

For many years the Internal Revenue Code (IRC) has allowed for charitable deductions for taxpayers who itemize.  This position, mainly under Code Section 170, continues.  However, there are even more avenues for deductions in this area for individuals, if the taxpayer can meet the requirements of the Code. (See Code Section 170(a)(1).)

Deduction of FMV and No Tax on Potential Gain:

One of the big advantages of Code Section 170 and the charitable deduction is that  the Code allows, where qualified, for the taxpayer to give property, such as a personal  painting created by a great artist and held for years, to a qualified charitable recipient, such as a university or religious organization meeting Code Section 501 (c)(3), and to deduct the fair market value (FMV) of the painting and not pay any income tax on what would have been the taxable gain if the painting had been sold for FMV.  (See Code Section 170(c)(2) and 501(c)(3).)

Within limits, this opportunity to give property to charity under the example noted continues.  Congress expanded this area in the 2025 Act.

New ½ of 1% Limit:

If a taxpayer does itemize on their tax return, meeting the above requirements, the opportunity to gain a charitable deduction continues.  However, Congress did put an additional restriction on the deduction described above by now limiting the deduction to otherwise qualified charitable gifts, but only allowing the deduction to the extent the gift exceeds ½ of 1% of the taxpayer’s adjusted gross income (AGI).  The deduction is valuable, but a bit less valuable because Congress reduced the deduction as noted above. (This rule applies to gifts made on or after January 2026.) See Code Section 170(b)(1).

Limit on the Tax Benefit of Charitable Gift Involving 37% Bracket Taxpayers:

Another change by the 2025 Tax Act limits the charitable deduction for taxpayers who find themselves in the 37% tax bracket, that is, the highest bracket for individual taxpayers.  In such instance, the value of the deduction is limited to a ceiling of 35%. See Code Section 170(b)(1).  Thus, there is a loss of 2% difference for such taxpayers.  (This rule of limiting itemized deductions for this group of taxpayers is not restricted to only charitable gifts; the itemized deduction for such taxpayers is limited to the 35% tax deduction benefit.) (This limit applies for gifts starting in 2026.) See also Code Section 68.

Non-Itemizers Get a Charitable Deduction Benefit:

Another change under the 2025 Act that is good news for some taxpayers is the ability/right to claim a deduction for a gift to a qualified charity even when the taxpayer does not itemize.  That is, the taxpayer might claim the standard deduction and nevertheless claim a charitable deduction, if they can qualify for the same.  

Starting in 2026, for gifts by a non-itemizing taxpayer, who is otherwise qualified, the taxpayer can claim a deduction up to a maximum of $1,000.  (It is up to $2,000 for a married couple filing jointly.)  See Code Section 170(p).  Thus, there is now a special deduction for this taxpayer or couple to claim a charitable deduction, within the limits noted, even when they claim the standard deduction.  (There are additional hurdles for this deduction, such as the requirement that the gift only applies to gifts of cash to the charity, not property.)

Other Charitable Gift Issues:

There are many other potential benefits, tax-wise, when giving gifts to charities.  For more on this issue, see Lexology 2026;  Levine, Mark Lee and Segev, Libbi Levine, Real Estate Transactions, Tax Planning, Chapter 13 (Thomson/Reuters/West 2026).

By Dr. Mark Lee Levine, Professor of Real Estate, University of Denver