Tax Cuts and Jobs Act:
Potential Impact on Charitable Giving
The Tax Cuts and Jobs Act (the Act), signed into law on Dec. 22, 2017, includes several provisions relevant to charitable giving. We are encouraged that a number of additional provisions that could have negatively impacted nonprofits were not included in the final legislation.
We’ve highlighted and summarized several relevant provisions. Each provision takes effect Jan. 1, 2018, and terminates at year-end 2025 unless extended by future legislation:
Increased AGI Limit for Cash Gifts to Public Charities
The amount of a charitable deduction a donor can deduct is limited to a percentage of the donor’s “contribution base,” which is essentially a donor’s adjusted gross income (AGI).
Prior to the Act, deductions for cash donations were generally limited to 30 percent of a donor’s AGI for gifts to most private foundations, and 50 percent of a donor’s AGI for gifts to public charities (such as FFTC) and certain private foundations. Under the Act, the 50 percent cap is increased to 60 percent for gifts to public charities and certain private foundations.
Key takeaway: The increased 60 percent cap will apply to gifts to FFTC, including contributions to FFTC donor advised funds, subsidiary foundations and other funds we manage. The 30 percent cap remains in place for most private foundations.
Increased Standard Deduction
Under both current law and the Act, only taxpayers who itemize their deductions can claim the charitable deduction for donations. Under the Act, the standard deduction is nearly doubled for all taxpayers. For example, the standard deduction for married individuals filing jointly will increase from $12,700 to $24,000.
Key takeaway: The increase in the standard deduction is expected to significantly reduce the number of taxpayers who itemize their taxes and can claim the charitable deduction. Several studies indicate that this could result in an overall decrease in charitable giving.
Doubled Estate Tax Exclusion
The Act doubles the estate and gift tax exemption from $5.6 million to $11.2 million per person ($22.4 million for married couples). As a result, individuals can now give greater amounts to family members and other individuals at death without incurring estate tax.
Key takeaway: Because all gifts to qualified charitable organizations at death are exempt from estate tax, individuals are incentivized to make charitable gifts of amounts above the estate tax exemption. This increased exemption amount is anticipated to reduce the amount some individuals give to charity at death.
Repeal of the Pease Limitation
Prior to the Act, taxpayers who itemized their deductions and had income above certain thresholds were required to limit itemized deductions (often referred to as the “Pease Limitation”). Under the Act, the Pease Limitation is repealed.
Key takeaway: The “Pease limitations” had no effect on the charitable deductions that most taxpayers could take as a result of their charitable gifts. Therefore, its repeal is not likely to have a significant impact on charitable giving.
Deductions Related to Seating Rights for College Athletics
Prior to the Act, a donor was generally able to claim a charitable deduction for up to 80 percent of the amount paid for the right to purchase seats for college athletic events. Under the Act, no deduction is permitted beginning in 2018. The change does not terminate at the end of 2025.
Key takeaway: Donors who previously used their donor advised funds to grant the deductible portion to athletic associations will no longer be permitted to do so.
For more information about the Act and the provisions above, below are links to several excellent summaries:
Top Tax Changes for Nonprofits and Education in the New Tax Bill - Cherry Bekaert LLP – Dec. 22, 2017
An Overview of the 2017 Tax Legislation - Prepared by PWC and provided by Morgan Stanley – December 2017
Tax Cuts and Jobs Act of 2017: Implications for Charities and Philanthropists - Robinson Bradshaw – Dec. 20, 2017
What the New Tax Law Means for Individuals and Closely Held Business Owners - McGuireWoods – Dec. 20, 2017
Neither this summary nor the information on our website is intended as legal or tax advice. You should discuss the implications of the Tax Cuts and Jobs Act with your tax advisor to determine how its provisions might apply to your specific facts and circumstances.
Douglas Benson, J.D.
Deputy Counsel & Vice President