The Charitable Deduction

Brent O’Mara supports Omaha causes, among them the American Cancer Society and the American Heart Association, and the oldest incentive attached to gifts like those is a line on the federal income tax return. The charitable deduction, as an economist explained in The Conversation, is a dollar for dollar reduction in taxable income for donations to tax exempt charities, available only to the taxpayers who itemize.⁴ It dates from 1917. NPR’s Planet Money recounted the origin: as the United States prepared to enter the First World War, Congress raised the top income tax rate from 15 to 67 percent, nonprofits worried that the wealthy donors they depended on would stop giving, and a New Hampshire senator who also served as a regent of the Smithsonian proposed letting taxpayers deduct their donations.³ The deduction has outlived every tax rate since.

Who gets it and how much

The deduction has always belonged to itemizers. The Internal Revenue Service’s tax topic on charitable contributions begins with the condition: a taxpayer may deduct contributions only by itemizing on Schedule A, and only for gifts to qualified organizations, never to individuals.¹ If a gift brings something back, a banquet seat or a ticket, only the amount above the fair market value of the benefit counts.¹ Records are required for every cash gift, a written acknowledgment for any gift of $250 or more, Form 8283 for noncash gifts above $500, and a qualified appraisal for items above $5,000.¹ Kiplinger adds that out of pocket volunteer expenses, including mileage at a flat fourteen cents, are deductible, but a donor’s time is not.⁹

Figure

What a deductible gift requires

1. 01
   A qualified recipientOnly gifts to qualified organizations count; gifts to individuals never do.
2. 02
   Less any benefitA ticket, a dinner or merchandise received in return reduces the deduction by its fair market value.
3. 03
   A recordEvery cash gift needs a bank record or a written communication from the charity showing its name, the amount and the date.
4. 04
   An acknowledgment at $250Gifts of $250 or more need a contemporaneous written acknowledgment saying whether any goods or services were provided.
5. 05
   Forms for propertyNoncash gifts above $500 go on Form 8283, and items above $5,000 need a qualified appraisal.

How much can be deducted depends on what is given and to whom. The IRS’s guidance for charities sets the general ceiling at a percentage of adjusted gross income, with lower limits of 30 and 20 percent for gifts to certain private foundations, fraternal societies and cemetery companies and for gifts of long term capital gain property, and allows amounts over the limit to carry forward.² For 2020 alone, the same page notes, Congress lifted the ceiling and let individuals deduct cash gifts up to 100 percent of income.² The treatment of gifts of stock or land rather than cash is its own subject, covered in gifts of appreciated assets.

The arithmetic favors the highest brackets. The Conversation’s economist gave the example of a veterinarian in the 32 percent bracket whose $100 gift to a food pantry costs her $68 after tax, while a neighbor taking the standard deduction pays the full $100 for the same gift.⁴ That regressive shape is the oldest objection to the deduction. NPR summarized a long line of economists who have called it a hole in the budget that benefits mostly the museums and universities favored by the rich rather than the churches and soup kitchens favored by everyone else, and who hoped the 2017 tax law would reform it.³ It did the opposite. By roughly doubling the standard deduction, the 2017 law cut the share of taxpayers who itemize from about 30 percent to about 10 percent, and in 2018 households reduced their giving by more than $15 billion, the largest decline since the recession of 2008.³

Figure

A deduction for the few

of taxpayers who itemize and can use it

10%

of taxpayers who claimed it in 2019

8.5%

as many claimed it before the 2017 law

nearly 3 times

after tax cost of a $100 gift for an itemizer in the 32 percent bracket

$68

The New York Times reported the same effect from the filers’ side: for 2018 just 11 percent of filers itemized, and nonprofits, grassroots charities in particular, felt the loss of the incentive.⁵ Two responses grew out of it. Donors who still wanted the deduction began bunching several years of gifts into one, often through a donor advised fund, and retirees over 70 and a half turned to qualified charitable distributions, which bypass the deduction altogether. Neither helped the majority who give modestly every year and claim the standard deduction. How much any gift saves depends on individual circumstances, from income to filing status, which places the arithmetic with qualified professionals in tax and in financial planning.

A century of changes

Congress tried an experiment during the pandemic. The CARES Act of March 2020 let taxpayers who do not itemize deduct up to $300 in cash gifts, above the line, for that year only.⁵ A second Conversation economist was skeptical of its power: about 32 percent of non itemizers already gave at least $300 a year and would simply deduct what they planned to give anyway, while roughly half of the non givers earned under $40,000, for whom a reduction in taxable income meant little.⁶ Gifts of stock, goods or volunteer hours did not count, and neither did gifts to donor advised funds or foundations.⁶ AARP later reported that the experiment had reached further than expected: more than 42 million taxpayers used the deduction in 2020, giving nearly $11 billion.⁸

The permanent version arrived in the 2025 tax law. USA Today reported that from 2026 taxpayers who claim the standard deduction may deduct cash gifts to qualified charities of up to $1,000, or $2,000 on a joint return, not indexed for inflation, excluding gifts to donor advised funds and supporting organizations.⁷ For itemizers the same law added a floor, so that only gifts above half a percent of adjusted gross income count, kept the 60 percent ceiling on cash gifts, and capped the benefit for the top bracket at 35 cents per dollar.⁷ A taxpayer must choose one route or the other in a given year.⁷ AARP noted that the new deduction, unlike the pandemic version, is larger and permanent, and that donations to private foundations remain ineligible for it.⁸

Figure

The 2026 rules

	Takes the standard deduction	Itemizes
Deduction for cash gifts	Up to $1,000, or $2,000 on a joint return	Cash gifts up to 60 percent of adjusted gross income
Floor	None	Only the amount above 0.5 percent of adjusted gross income
Benefit cap	Not applicable	35 cents of tax saved per dollar for the top bracket
Gifts that qualify	Cash to public charities only	Cash and property
Donor advised funds	Excluded	Allowed

What comes next is a changed population of donors. Marketplace reported an Indiana University Lilly Family School of Philanthropy estimate that the 2026 rules would add roughly 8 million new donors to the pool, mostly people making small gifts for the first time with a federal incentive, while the floor and the benefit cap would trim what higher income itemizers give, for a net loss to charities of about $5.7 billion a year, about 1 percent of giving.¹⁰ A Tax Foundation economist expected the effects to show only at the margins, and a Boston College law professor observed that the loss arrives as federal funding for many organizations has been cut.¹⁰ The pattern of who gives, and how much, across the whole country is the subject of how Americans give. A deduction invented to keep a few rich donors giving in 1917 will, for the first time in its history, reach the many who were never asked to itemize.