Tax Reform Changes to Charitable Deduction

As promised, the House-Senate Conference Committee on the Tax Cuts and Jobs Act has preserved the deduction for charitable contributions.  The new law actually increases the adjusted gross income (AGI) limitation for deducting cash contributions— from 50% to 60% of AGI —effective for contributions made in tax years beginning after 2017.

As anticipated, the law repeals the current 80% deduction for contributions made for university athletic seating rights, effective for contributions made in tax years beginning after 2017.

The original House bill had proposed increasing the standard mileage rate for charitable use of an automobile.  The increase would have taken into account the variable cost of operating an automobile rather than the current 14 cents per mile.  This provision did not make the final bill.

Other provisions of the law could have significant effects on the amount of charitable giving.  Increasing the standard deduction coupled with the elimination of many itemized deductions is expected to significantly reduce the number of taxpayers who itemize deductions.  Currently about 33% of individual taxpayers itemize.  Under the new provisions, it is estimated that less than 10% will itemize.  Tax-exempt organizations are concerned that these changes might influence the level of charitable contribution by individuals.

The reduction of the corporate tax rate could also reduce the contributions received by charitable organizations by reducing the tax benefit of the donation.  The new law did not change the limitation on deductibility; Corporations are still limited to deducting charitable deductions up to 10% of taxable income. 

Additionally, there is concern that the increase to the estate tax exemption to over $11.2 million will also be a drag on charitable giving.  A lower estate tax burden may erode the incentive to leave bequests to charity.

If you have any questions on the changes to charitable deductions or the impact of the new law on non-profit organizations and charitable giving, please feel free to contact us for help.

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