The New Rules for Deducting Charitable Contributions
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A goal of the 2025 Tax Act is to lower taxes for many individuals through a number of deductions such as increasing the standard deduction as well as raising limit on deductible state and local tax. While there are several other tax saving benefits in the act, one of the areas taking a hit is the deductibility of charitable contributions.
The 2025 Tax Act added a 0.5% floor to charitable contributions. This means that a taxpayer with adjusted gross income (“AGI”) of $100,000 will not be able to deduct the first $500 of contributions. While the charitable standard mileage rate for 2025 remains at 14 cents per mile. The mileage deduction is not exempt from being included from the floor.
The act also raised the AGI percentage limitation to 60% for cash contributions to what were considered “50% charities”. These organizations include educational organizations, churches, hospitals, and other medical research organizations. The best way to determine which limitation a charity falls under is to look the organization up using the IRS’s Tax Exempt Organization Search tool located at https://apps.irs.gov/app/eos/.
While the deductions for cash contributions are more liberal, the deduction of property such as automobiles or anything that has a value resulting in a capital gain if sold such as stocks, artwork, or collectible items like memorabilia and coins is much more restrictive. In some cases, special forms must be completed with specific documentation attached. In addition, depending on the organization, the limitation could be as low as 20% of AGI. For those making large contributions, it is important to find out where the charity falls in the government’s eyes to avoid unnecessary surprises with unexpected limitations as not all charities are treated the same. Keep in mind that excess deductible contributions may be carried forward up to five years.
In closing, for the average person, the new 0.5% floor will have a minimal effect on their tax return but those making large annual contributions will want to consult a tax professional to maximize tax savings.
