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Retirement plans and charitable giving: QCDs continue their appeal

You’ve no doubt noticed that Qualified Charitable Distributions (“QCDs”) continue to gain traction as one of the most practical and effective charitable planning tools for clients over age 70 ½. By allowing eligible clients to transfer funds directly from an IRA to a qualified charity without recognizing the distribution as taxable income, QCDs can help reduce adjusted gross income while supporting charitable priorities. For many clients—especially those who do not itemize deductions—a QCD is particularly appealing. 

What’s especially notable is that in recent years, Congress has expanded planning opportunities by indexing annual giving limits for inflation ($111,000 per person in 2026) and allowing certain one-time QCDs (“Legacy IRAs”) to fund charitable gift annuities and charitable remainder trusts. And now, proposed legislation known as the “Charity Parity Act” would, if enacted, extend QCD treatment beyond IRAs to include employer-sponsored retirement plans such as 401(k)s, 403(b)s, and 457(b)s. This potential change in the law would remove the extra step of rolling assets into an IRA before making a charitable gift, simplifying the process for many donors whose retirement savings remain primarily in workplace plans.

Consider a typical client scenario. Your client, age 74, is taking Required Minimum Distributions (“RMDs”) from a traditional IRA. Because the client claims the standard deduction, charitable gifts do not generate additional tax savings. By instead directing a portion of the RMD to a qualified charity as a QCD, the client can satisfy part or all of the RMD obligation without increasing taxable income. In many cases, this can also help reduce Medicare premium surcharges and lessen the taxation of Social Security benefits, creating planning advantages beyond the charitable deduction itself.

Here are three examples of how the community foundation can help your client achieve charitable goals through QCDs:

—A client directs a QCD from an IRA to the community foundation’s unrestricted fund to support broad community needs. The client satisfies part or all of the client’s annual RMD requirements while supporting flexible grantmaking that addresses changing priorities in the region.

—A client uses a QCD to contribute to a field-of-interest fund at the community foundation focused on causes such as education, healthcare, the arts, or environmental conservation. This allows the client to support a specific area of passion while relying on the community foundation’s expertise to identify effective nonprofit organizations over time.

—A client makes a QCD to an existing designated fund or scholarship fund held at the community foundation. For example, the client may support a favorite local nonprofit through a designated fund or help students pursue higher education through an endowed scholarship fund, all while reducing taxable income through a QCD.

Keep in mind that charitable giving with IRAs goes beyond current gifts to charity! As part of advising clients about their IRAs, be sure to check their beneficiary designations. Not only is it tax advantageous for a client to name a fund at the community foundation or other public charity as beneficiary of an IRA, but it’s also a best practice to avoid problems in the future. (Retirement plan beneficiary designations continue to show up in cautionary tales!)   

For attorneys, CPAs, and financial advisors, developments related to QCDs are worth watching closely. QCDs increasingly serve as a natural connector among retirement planning, philanthropy, and legacy conversations. Just as importantly, QCD discussions often open the door to broader planning opportunities, helping clients align financial goals with the causes and communities they care about most. As always, please reach out to the community foundation anytime!

Case study: Charitable giving in a down market

As you guide clients through ongoing market uncertainty, you may be noticing that conversations are becoming as much about perspective as performance metrics. While headlines may or may not ultimately signal a prolonged downturn, the mere possibility of a bear market can influence how clients think about everything from retirement timelines to charitable giving. As an advisor, you have an opportunity to help clients stay grounded and intentional, even when emotions are running high.

Consider this scenario.

When David and Laura arrive at your office for their annual planning meeting, the tone feels different from prior years. In their early 70s and recently retired, David and Laura have always approached financial decisions with a long-term mindset. But today, Laura opens the conversation with a note of concern.

“We’re not panicking,” she says, “but it’s hard to ignore what’s going on in the markets. It just feels unsettled.”

You nod. You’ve been hearing similar sentiments from many clients. Even when portfolios remain relatively strong, uncertainty alone can create stress. Studies have consistently shown that financial concerns weigh heavily on emotional well-being across generations, and market volatility tends to amplify those feelings.

As you walk through David and Laura’s portfolio and estate plan, the numbers tell a reassuring story. Their overall financial plan is still on track, and their estate plan still reflects their goals. But you recognize that this moment calls for more than reassurance. It is an opportunity to reframe how charitable giving fits into the broader picture.

“You’ve both been incredibly consistent in your support of local organizations,” you say. “Tell me how you’re feeling about giving this year.”

David pauses. “We still want to give,” he says. “We just don’t want to make a mistake if the market gets worse.”

That hesitation is familiar. Rather than pulling back entirely, many clients simply need a way to move forward with confidence.

You start with a simple reminder. “Not all stocks are down.”

You point to a portion of their portfolio that has performed well over time. These appreciated positions present an opportunity. By contributing long-term appreciated stock to their donor-advised fund at the community foundation, David and Laura may be able to avoid capital gains tax while supporting the causes they care about. Even in a volatile market, this strategy remains one of the most efficient ways to give.

Laura leans in. “So even now, that still makes sense?”

“It often does,” you reply. “And it can give you flexibility. You can make the gift now, receive the tax benefits, and then take your time recommending grants.”

The conversation begins to shift. Instead of focusing solely on uncertainty, David and Laura are now thinking about options.

You also gently raise another point. “Market cycles come and go, but community needs don’t pause.”

You explain that periods of economic strain often increase demand for nonprofit services, particularly for households already feeling the effects of inflation and rising costs. The community foundation is closely connected to these needs and can help ensure that their giving is as impactful as possible.

Finally, you mention a strategy they have not yet used: “Because you’re both over 70 ½, we should also look at Qualified Charitable Distributions from your IRAs.”

You walk them through how a QCD could satisfy required minimum distributions while avoiding income tax on those amounts. For clients in their stage of life, it is a straightforward and effective way to continue supporting charitable priorities regardless of market conditions. “You can direct your QCDs to certain types of funds at the community foundation,” you explain. “You can’t use them to add to your donor-advised fund (at least not yet), but you can support the community foundation’s strategic priorities to help the whole region thrive.” 

By the end of the meeting, David and Laura feel a renewed sense of clarity. They decide to move forward with a gift of appreciated stock to a donor-advised fund and explore a QCD over the summer to avoid the year-end rush. Just as importantly, they feel reassured that their charitable giving does not need to stop simply because the market feels uncertain.

Situations like this are increasingly common. Even the possibility of a downturn can shape client behavior, but it can also open the door to meaningful planning conversations and help keep charitable giving going strong across our community. As always, the community foundation is here to help you navigate these discussions—offering practical strategies, local insight, and support for your clients’ charitable goals in every type of market environment.

The Momentum of Generosity: View our FY2025 annual report

‘Last year, TCFHR grew to $97.2 million in assets, with gifts totaling $11.3 million.

Through our organization, our donors awarded more than $8.3 million in cumulative grants to mostly local nonprofits.

Thirty-four funds were founded just this year.

These achievements show continuing momentum.

Every grant awarded, every student scholarship, every initiative here is proof that, together, we are doing some amazing work…’

—Revlan Hill, executive director

***

The 2025 Annual Report features the following information:

  • statistics and data related to giving, funds, scholarships, and grants;
  • new funds, including several new endowed funds to support mental health, community needs, Blue Ridge Free Clinic clients in need, and more;
  • synopses of staff transitions and technology upgrades;
  • coverage of the Virginia Ready vocational education scholarship program;
  • a wonderful thank-you letter from a Rocktown High School ’25 graduate now studying architecture at the Illinois Institute of Technology;
  • and more…

View the digital edition.

Special thanks to Jon Styer and Rhoda Miller with At Ease Design Co.

New partnership series for professional advisors kicks off in March 2026

A new biannual informational series for professional advisors begins Tuesday, March 24, at the Community Foundation of Harrisonburg and Rockingham.

Professional advisors have been key contributors to the growth of the community foundation. Come to our 317 South Main Street office at 8 a.m. for coffee, a light breakfast, and a discussion of the many ways we can partner together to serve your clients.

Executive Director Revlan Hill, joined by staff, will share examples of how we work on behalf of your clients, how we can help clients who don’t know where to start with their philanthropic giving, and the many benefits of working with TCFHR, including anonymity for your clients.

We’ll also cover types of funds, QCDs, succession planning, estate and legacy gifts, gifts of retirement plan assets, and the amazing power of endowments, a way to give more and make a bigger difference.

A reservation by Thursday, March 19, is encouraged. Click here to reserve your spot.

Look for news about a second event designed just for advisors in October 2026.

Foundation earns ‘unmodified’ audit opinion for FY2025 financials

The Community Foundation of Harrisonburg and Rockingham announces that its financials have received an “unmodified,” or clean audit opinion from independent auditor Brown Edwards & Co, LLP, for the fiscal year ending June 30, 2025.

“This is the best type of audit opinion to receive, as it is a clean opinion,” said Chief Financial Officer Anna Wagner.

View the FY 2025 Audit Report.

 

For Wagner, concluding the audit process always a relief — and an exciting point in the year as well.

“We get to officially close the fiscal year with permanence and share our financial information publicly with the donors, fundholders, and clients to let the numbers tell our story of impact in the community,” she said.

Wagner encourages those interested to take a look at the audited financial statements, including the notes.

“The other documentation we use to tell the story of the financial year is the annual report, available next month,” she said.

The annual independent audit is required to maintain accreditation with the Community Foundation National Standards (CFNS). This accreditation requires proof of “legal, ethical, effective practices” in donor services, investment management, grantmaking, and administration.

Last week, the foundation received news it earned re-accreditation for three more years.

The annual audit is also a significant sign to donors, the board of directors, and the general public that the foundation “prioritizes stewardship, accountability, and accuracy,” Wagner says, and is “committed to excellence and care at all levels of the organization, especially with financial information that isn’t ‘loud and flashy.’”

The audit also adds assurance to any annual financial reporting of the foundation, she added, because independent professionals are making sure the financial records are accurate.

“Accountability is key,” Wagner said, “and we want to provide the highest level of confidence to our donors as they trust us with their charitable dollars.

Wagner actually never stops preparing for the annual audit, as careful accounting and processing occurs every workday. The entire fiscal year, however, must be accounted for and a “complete set of books” ready for review when the auditors arrive at the office each fall.

Auditors make standard requests to meet basic auditing requirements — for example, schedules supporting all the numbers and a sample of various accounts — but they can also request other information. Over the week-long on-site visit, auditors also learn about the organization’s processes, assess risks, and perform procedures on various types of activity, such as sampling and analytics.

Foundation re-accredited under rigorous national philanthropic standards

The Community Foundation of Harrisonburg and Rockingham recently received accreditation with the nation’s highest standard for philanthropic excellence. Community Foundations National Standards® establish legal, ethical, effective practices for community foundations.

With their re-accreditation, TCFHR joins more than 500 foundations across the country who have met these rigorous requirements for donor services, investment management, grantmaking, and administration. The process is voluntary and reconfirmed every three years.

“This is critically important to our donors, who value transparency, integrity, and accountability,” said Revlan Hill, the foundation’s executive director. “When people make a charitable bequest or establish a fund, they are putting their trust in us. They are counting on us to manage the investment wisely and honor their charitable wishes. The National Standards accreditation says our house is in order.”

The standards set consistent expectations for the board and staff, ensure policies are in place for financial stability and sustainability, and affirm commitments to best practices of the field.

One of those practices is an annual audit by an independent firm specializing in public audits; TCFHR received an “unmodified” audit opinion for FY2025.

Documentation was reviewed by a community foundation expert from a panel appointed by the Community Foundations National Standards Board, a supporting organization of the Council on Foundations in Washington, D.C.

NEW: Tax law changes in 2026 that may affect your giving

Our current and prospective fundholders, and anyone interested in giving to local causes, should be aware of the following changes and a few new tax laws that may impact charitable giving.

Social Security COLA increases

The Social Security Administration announced a cost-of-living adjustment (COLA) increase effective January 1, 2026. This increase reflects inflation’s trajectory and may result in increased Social Security benefits.

Standard deduction increases

For tax year 2026, the standard deduction increased to $16,100 for single taxpayers, $24,150 for heads of households, and $32,200 for married couples filing jointly.

 The standard deduction is a key factor in charitable giving strategies. If a person’s total itemized deductions—including charitable gifts—exceed the standard deduction, they are eligible to itemize. Reviewing this threshold and considering a “bunching” strategy (accelerating multiple years of giving into one tax year) can help maximize charitable support through 2026 and beyond.

Tax brackets

Though the tax rates remain at a range from 10% to 37%, the income levels that define each bracket for 2026 have shifted.

Limitation on itemized charitable deductions for high-income taxpayers

High-income taxpayers will face an additional limitation through a new cap on the value of itemized charitable deductions. Even if a donor is in the highest federal income tax bracket, the tax benefit of a charitable deduction will be limited to 35 percent of the contribution. As a result, taxpayers in the 37 percent bracket will no longer be able to offset their income at their full marginal rate when making charitable gifts.

Good news for the 60% cap

Another important change provides greater certainty for donors who make substantial cash contributions. The long-standing rule allowing cash gifts to qualified public charities to be deducted up to 60 percent of adjusted gross income has been made permanent. After satisfying the new 0.5% AGI floor, donors may continue to deduct cash contributions up to this level, while non-cash gifts or contributions to certain types of organizations remain subject to lower percentage limits. 

New incentive for non-itemizers

The new rules introduce an incentive for taxpayers who do not itemize deductions. Beginning with the 2026 tax year, individuals who claim the standard deduction will be allowed to take a limited charitable deduction above the line, meaning it reduces income before adjusted gross income is calculated. Single filers may deduct up to $1,000, while married couples filing jointly may deduct up to $2,000, provided the contributions are made in cash. This deduction is available in addition to the standard deduction and represents a meaningful expansion of tax benefits for charitable giving among non-itemizers, many of whom have received no tax benefit for donations in recent years. Note, however, that gifts to donor-advised funds are not eligible for this deduction, and neither are noncash gifts. (This is unfortunate because both gifts to donor-advised funds and gifts of highly appreciated assets are useful tools that incentivize charitable giving.)

New threshold to itemize charitable deductions

One of the most significant shifts affects individual taxpayers who itemize their income tax deductions. Beginning this tax year, charitable contributions will only be deductible to the extent that they exceed 0.5% of a taxpayer’s adjusted gross income. In practical terms, this means that a portion of charitable giving will no longer generate a tax benefit. For example, a taxpayer with an adjusted gross income of $200,000 will see no deduction for the first $1,000 of charitable contributions made in a year. Only donations above that amount will be eligible for deduction, subject to existing percentage-of-income limits. This new rule functions much like a deductible in an insurance policy, raising the effective threshold for receiving a tax benefit and reducing the immediate incentive for smaller annual gifts among itemizers.

QCDs may be even more useful

Retirees and older taxpayers will also see an important adjustment through an increase in the Qualified Charitable Distribution limit. For tax year 2026, the per-taxpayer limit for Qualified Charitable Distributions (QCDs) has been increased for inflation to $111,000, up from $108,000 in 2025. And the limit for a one-time QCD from an IRA to a split-interest vehicle has been adjusted for inflation to $55,000, up from $54,000.

This allows taxpayers age 70 ½ and older to further reduce their AGI and, if applicable, satisfy all or part of their required minimum distributions (RMDs). A QCD to a qualified fund at the community foundation (such as a designated or field-of-interest fund but not a donor-advised fund) remains one of the most tax-efficient ways to support charity. 

Generally, though, this change should help donors direct more funds to charitable causes without including those distributions in taxable income. Because Qualified Charitable Distributions can also count toward required minimum distributions, this higher limit enhances a tax-efficient giving strategy that is unaffected by itemized deduction limits, adjusted gross income floors, or caps on deduction value.

 

Case study: A QCD conversion in action

If you know the basics of Qualified Charitable Distributions (QCDs) but have a hard time envisioning exactly what to say and do when they come up in a client conversation, you are not alone! Whether you are an attorney, CPA, or financial advisor, at some point you will find yourself in the middle of a QCD conversation. Here’s a case study to help you be prepared. 

Margaret, a 74-year-old widow and longtime client of your practice, scheduled a meeting early in the year to discuss her charitable giving plans. In the email Margaret sent to set up the meeting, she mentioned that she was now taking required minimum distributions from her IRA and her taxable income was higher than she expected or needed. 

As you reviewed Margaret’s file prior to the meeting, you were reminded that Margaret had established a donor-advised fund at the community foundation several years ago. She has enjoyed using the donor-advised fund to organize charitable giving to dozens of favorite charities and appreciates how the foundation uses the fees to support valuable programs and initiatives.

After some initial conversation, Margaret jumps right in: “I’ve read about this thing called a Qualified Charitable Distribution. If I’m going to give to charity anyway, I want to understand whether doing a QCD in 2026 makes sense, especially if I want the gift to go through the community foundation where I already do all of my giving.”

You explain that a QCD does indeed allow individuals like her who are age 70 ½ or older to transfer funds directly from an IRA to a qualified charity without including that amount in taxable income. You mention that this can be especially powerful after age 73, when required minimum distributions begin, because the QCD can satisfy all or part of the RMD while keeping adjusted gross income lower. “This can help address Medicare premiums, taxation of Social Security, and overall tax efficiency,” you continue. “With the annual QCD limit increasing through inflation adjustments to $111,000 in 2026, it’s a timely strategy to consider.”

Margaret was glad to hear all of this.

“I already have a donor-advised fund at the community foundation. Can I simply direct my QCD straight into that fund?” She asked.

You are prepared for this question — a common point of confusion. “That’s a great question, and you’re not alone in asking it,” you reply. “Under current IRS rules, unfortunately, QCDs can’t be made to donor-advised funds, even if they’re housed at a community foundation.”

Seeing her puzzled expression, you continue with a broader explanation. “QCDs are limited to certain types of charitable recipients,” you say. “They can go directly to public charities that are ‘operating’ nonprofits, and in limited cases to certain split-interest arrangements like a charitable gift annuity or a charitable remainder trust, subject to specific rules. Donor-advised funds are excluded, evidently because the IRS does not want the money to flow into account where the taxpayer retains advisory privileges. Donor-advised funds are of course entirely dedicated to charity, so the rule does not make a lot of sense. Yet here we are.”

Margaret frowned slightly. “That feels frustrating,” she said. “I love the donor-advised fund because it gives me flexibility and lets me support multiple causes over time.” You acknowledge her concern. “I understand. The good news, though,” you say, “is that the community foundation offers other types of funds that do qualify for QCDs and can still accomplish many of the same goals.”

You go on to explain that instead of directing the QCD to her donor-advised fund, Margaret could direct the QCD to a designated fund at the community foundation that supports specific charities she already knows she wants to help, or to a field-of-interest fund focused on causes she cares about deeply, such as education or the arts, or to an unrestricted fund to support the community as a whole. “Those types of funds are fully managed by the community foundation, without your advisory role after setup which makes them eligible recipients of a QCD while still aligning with your charitable intentions.”

Margaret paused, considering the options. “I don’t want to make the wrong choice,” she said. “I also want to be sure the fund is set up properly and really reflects what I care about.”

Your response is that collaboration matters here. “This is where I’d recommend looping in the community foundation,” you say. “They can help us think through which type of fund fits best, provide a fund agreement document, and enable me to fulfill my professional duty to ensure that the structure complies with QCD rules.”

You go on to suggest a joint meeting with a community foundation representative. “The community foundation knows the nuances of the fund options and the local charitable landscape,” you explain. “That’s a great match for the legal and tax obligations on my side of the transaction. Together we can help ensure that your QCD in 2026 is clean, compliant, and aligned with your values.”

Margaret smiled, clearly relieved. “That makes sense,” she said. “I don’t want this to be just about taxes. I want it to be meaningful.”

By the end of the meeting, you and Margaret have agreed on next steps: you said you would review Margaret’s IRA custodian requirements for executing a QCD, and the community foundation will set up a fund to receive the distribution. The plan will allow Margaret to use her required minimum distribution to support the community she loves, reduce her taxable income, and create a charitable structure she feels confident about.

As Margaret leaves your office, you can tell that she feels reassured that she didn’t have to navigate the rules alone. The conversation had clarified not only why a QCD in 2026 made sense for her financially, but also why working collaboratively with you and the community foundation was essential. Together, you and the community foundation can turn a confusing tax rule into a thoughtful charitable strategy that supports both Margaret’s personal financial goals and the broader community she intends to impact.

If Margaret’s situation sounds familiar, or if you anticipate any type of charitable giving conversation with a client, TCFHR is here for you. There’s a bipartisan tax law change that has been proposed that would allow Qualified Charitable Distributions into donor-advised funds. We’re encouraged by that, as it would make a big difference for our current and prospective fundholders.

OBBBA, new tax rules, and new urgencies in mapping out your clients 2025 charitable giving plans

It’s never been easy to navigate the ever-shifting tax rules to help clients structure charitable gifts, and now it’s even trickier. Major changes under the One Big Beautiful Bill Act (OBBBA), signed into law on July 4, 2025, are creating complexity, opportunity, and, for some, urgency. The OBBBA reshapes both how much a client can deduct for charitable contributions and which clients can benefit from these deductions in the first place. 

As always, the team at the community foundation is honored to be your first call when the topic of charitable giving arises in client conversations. In most cases, the community foundation’s tools can be useful, and if we can’t help directly, we’ll point you in the right direction.

Here are three key issues to discuss:

Evaluate whether the client could benefit from “bunching” charitable contributions in 2025

Many advisors are recommending that their clients address head on the One Big Beautiful Bill Act’s expansion of the standard deduction—$15,750 for single filers and $31,500 for married couples in 2025, with even higher levels for taxpayers aged 65 and older. A technique known as “bunching” charitable donations can be particularly useful. For example, if a client typically donates $12,000 each year to charity, but the client’s other deductions do not push them over the standard deduction, the client could give $36,000 (three years’ worth of gifts) to a donor-advised fund at the community foundation in 2025. The idea is that the client can combine this gift with other deductions to substantially exceed the standard deduction, allowing the client to itemize and claim a much greater deduction for that year. Over the following two years, the client can take the standard deduction and lean on the donor-advised fund to distribute funds to favorite charities. 

Note that the higher standard deduction will likely impact tax-motivated charitable giving, even with the expected uptick in the number of itemizers thanks to the OBBBA’s new state and local tax deduction allowances (subscription required to the Wall Street Journal). 

Look ahead to 2026 as you help clients plan for 2025

For your clients who continue to itemize deductions, 2026 will bring even further changes. Only charitable donations exceeding 0.5% of AGI will be deductible. For example, a couple with $225,000 in AGI would see their deductible charitable amount reduced by $1,125 per year. Although clients who are large-scale donors may find this change proportionately less impactful, clients making moderate or smaller-sized gifts might see a significant reduction in their eligible deductions. What’s more, under the OBBBA, high-income taxpayers will see their maximum tax benefit from charitable deductions calculated at a top marginal rate of 35%, down from 37%, starting in 2026.

These changes may prompt higher-income clients to lean heavily on bunching strategies in 2025 to maximize current tax advantages before stricter limits kick in.

Watch the fine print on the charitable deduction for non-itemizers

Under the OBBBA, starting in 2026, taxpayers who take the standard deduction will be able to claim a direct deduction for charitable giving—up to $1,000 for single filers and $2,000 for married couples filing jointly. This provision mirrors temporary measures seen during the COVID-19 pandemic. Crucially, the deduction is limited to cash gifts made directly to qualified charities; donations of property or stock, and contributions to donor-advised funds, do not qualify. For the estimated 100 million Americans who do not itemize, which likely includes many of your clients, this provision is certainly good news. That said, gifts of appreciated stock and donor-advised funds are tax-effective and convenient charitable giving vehicles, and many clients may be disappointed that they can’t deploy these techniques to take advantage of this new deduction.

2025 certainly is shaping up to be an important year for helping your clients plan their charitable gifts. Please reach out to our team to explore ways to leverage the community foundation’s tools, including establishing your client’s donor-advised fund to take advantage of bunching. And of course, always remember that regardless of the tax implications, your clients’ philanthropy addresses vital community needs—and this is a motivator that transcends any deduction.

How the One Big Beautiful Bill Act impacts philanthropy

The One Big Beautiful Bill Act was signed into law by President Trump on July 4, 2025.

The OBBBA, with nearly 900 pages of provisions, reshapes policy across major sectors of the U.S. economy. Included in the OBBBA are several provisions that impact philanthropy. Three major takeaways are of particular importance as the community foundation helps donors, fund holders, and nonprofits–as well as attorneys, CPAs, and financial advisors–navigate charitable planning opportunities over the months and years ahead. 

Insight #1: Standard deduction goes higher

What’s in the OBBBA?

The new law makes permanent the standard deduction increases under the Tax Cuts and Jobs Act of 2017 (TCJA), increasing the standard deduction for 2025 to $15,750 for single filers and $31,500 to taxpayers who are married and filing jointly. The new law also expands the “bonus” deduction for taxpayers 65 and older through 2028.

What’s more, under the new law, individuals who itemize may take charitable deductions only to the extent the charitable deductions exceed 0.5% of adjusted gross income. Furthermore, taxpayers in the top bracket can only claim a 35 percent tax deduction for charitable gifts instead of the full 37 percent that would otherwise apply to their income tax rate. Note also that the final bill permanently extended the 60% of adjusted gross income contribution limitation for cash gifts made to certain qualifying charities.

What does this mean for charitable giving?

With even fewer taxpayers eligible to itemize, and deductions capped for high-income earners, we’re likely to see a continuation of the chilling effect on charitable giving that occurred in the wake of the TCJA.

What can you do?

If you regularly support charities, it’s important to continue to do so whether or not you’re benefiting from a tax deduction. Our community needs you, now more than ever. If you’re a nonprofit, or if you’re an attorney, CPA, or financial advisor who works with charitable clients, remember that people do not give to charity solely to secure a tax deduction. Keep in mind that many other factors motivate charitable giving, and philanthropy is an important priority for many families. (This article in the Stanford Social Innovation Review has stood the test of time.)

Insight #2: Deduction for non-itemizers

What’s in the OBBA?

The new law includes a provision, effective after 2025, allowing non-itemizers to take a charitable deduction of $1,000 for single filers and $2,000 for taxpayers who are married and filing jointly. As has been the case in the past, gifts to donor-advised funds are not eligible. Unlike a previous (but smaller) similar provision, though, this law is not set to sunset. 

What does this mean for charitable giving?

After the TCJA went into effect, households that itemize deductions dropped to under 10%. Parallel to this trend, the number of U.S. adults who give to charity in any given year has dropped over the last 20 years from nearly two-thirds to less than half, according to some studies. Against this backdrop, the OBBBA’s deduction for non-itemizers has the potential to re-motivate charitable giving among a significant number of households. 

What can you do?

For everyone, now is the time to take a serious look at your charitable giving plans to support the causes you care about over the years ahead, especially if you are early in your career and not yet itemizing deductions. If you’ve already established a fund or you’re working with the community foundation in another way, please reach out to learn how we can help you make the most of the new tax laws, and even get your children and grandchildren involved.

If you’re a nonprofit, now is the time to attract and engage brand new donors.

And if you’re an attorney, CPA, or financial advisor, make sure you talk about charitable giving with your clients who don’t itemize; a $1,000 or $2,000 deduction could be just the motivation they need to begin a journey of philanthropy. 

Insight#3: No sunsetting estate tax exemption

What’s in the OBBA?

For affluent taxpayers updating financial and estate plans, and for the attorneys, CPAs, and wealth managers advising them, the last couple of years have been a roller coaster because of the looming possibility that the TCJA’s increase to the estate tax exemption would sunset at the end of 2025. Finally, there is clarity: Under the OBBBA, the sunset will not happen. The new law makes permanent the increase in the unified credit and generation-skipping transfer tax exemption threshold. The 2025 exemption is $13.99 million for single filers and $27.98 million married filing jointly. In 2026, these numbers increase to $15 million and $30 million respectively.

What does this mean for charitable giving?

Purely estate tax-based incentives to give to charity continue to apply only to the ultra-wealthy, likely resulting in a continuation of the taxpayer behavior triggered by the TCJA. In other words, most people will give to charity during their lifetimes and in their estates for reasons other than a tax deduction.

What can you do?

There is no guarantee that the estate tax exemption will stay high forever. As families work with their tax and estate planning advisors, many are viewing the next two years as an important window to plan ahead. The upshot of the new law is that high net-worth taxpayers now have more time to thoughtfully consider estate planning strategies, including charitable giving. For nonprofit organizations, this means that continuing to focus on long-term planned giving strategies is wise.   

This information is not intended as legal, accounting, or financial planning advice.