Podcast Summary: Your Charitable Income Tax Breaks Are Changing in 2025 and 2026

Podcast: ACTEC Trust & Estate Talk
Date: November 4, 2025
Host: Natalie Perry, ACTEC Fellow
Guest: Professor Christopher Hoyt, University of Missouri School of Law

Episode Overview

This episode dives into the significant changes to charitable income tax deductions under the “One Big Beautiful Bill Act” (OB3), effective from 2025 and 2026. Professor Christopher Hoyt breaks down the implications for donors, particularly focusing on practical year-end tax planning strategies in light of new deduction limits, itemization rules, and special considerations for donors over and under age 70½.

Key Discussion Points & Insights

1. The OB3 Act – A Tax Law Overhaul

Signed into law July 4, 2025, OB3 brings the most significant changes since 2017, affecting taxes, credits, and deductions—including those for charitable giving.
Urgent need for professionals and taxpayers to understand and plan for changes impacting 2025 and 2026 filings.
The Act is tongue-in-cheek referred to as “OB3,” a nod to Star Wars, reflecting its galaxy-far-far-away complexity.

“They do look like they came from a galaxy far, far away.” – Christopher Hoyt [01:38]

2. New Above-the-Line Charitable Deduction for Non-Itemizers (2026 and Beyond)

Starting in 2026: Taxpayers using the standard deduction (about 90% of filers) can now also deduct charitable gifts—previously only available to those who itemized.
- Caps: $1,000 for single; $2,000 for married filing jointly; CASH gifts only.
- Not available for gifts to donor advised funds, private grant-making foundations, or section 593 supporting organizations.
- Requires contemporaneous written acknowledgment for gifts over $250.
- Practical Planning: Consider delaying December 2025 donations until January 2026 to take advantage of the new deduction (if donating less than the cap).
  
  “January is the new December.” – Christopher Hoyt [03:35]

3. Expansion of State and Local Tax (SALT) Deduction

2025–2029: The SALT deduction limit rises from $10,000 to $40,000, retroactive to Jan 1, 2025.
- Result: More taxpayers (estimated 14%, up from 10%) will itemize, especially in high-tax states.
- Phaseout: For incomes over $500,000, the SALT limit begins phasing back down to the old $10,000 cap; once income is over $600,000, only $10,000 is allowed.
- Tax Planning: Taxpayers just below $500,000 AGI may try to manage income to maximize deductions.

4. Age-Based Planning: Over vs. Under 70½

A. Over Age 70½: Qualified Charitable Distributions (QCDs)

Best practice: Use IRA funds for charitable gifts—up to $108,000 in 2025, completely excluded from taxable income.
Advantages: Not subject to new deduction limits or reduced benefits for high-income donors.
Note: Those over 72 should generally make ALL charitable gifts from IRAs.

“Most donors over the age of 72 should make all of their charitable gifts from their IRAs. Their IRA can be their charitable foundation.” – Christopher Hoyt [09:51]

B. Under Age 70½: Regular Charitable Giving

Avoid IRA gifts (especially under 59½, to sidestep income taxes and the 10% penalty).
Best asset to donate: Appreciated stock, not cash, for those who itemize.

5. New Itemizer Restrictions Beginning 2026

Charitable gifts only deductible to the extent they EXCEED 0.5% of Adjusted Gross Income (AGI).
- Example: $200,000 AGI → $1,000 “floor,” so only gifts above $1,000 are deductible.
- 2025: Deduct full gift. 2026: Only amount above the floor.
Year-End Planning 2025: Front-load contributions for more favorable deduction.
- Example: Bunching donations or using donor advised funds to lock in full deductibility before the limit hits.
  
  “Year end tax planning for 2025 is to make more gifts. You might put $40,000 into a donor advised fund. You’ll deduct all of it in 2025.” – Christopher Hoyt [08:42]

6. Limits for High-Income Taxpayers

For those in the 37% tax bracket ($615K single, $730K married), charitable deduction tax savings are capped at 35%—not the top bracket rate.
- Example: $100 interest income taxed at 37%; $100 charitable gift yields only 35% tax savings.
- May also apply to trusts and estates, which hit 37% at only $16,000 of income.

“The new law provides that you have to reduce your itemized deductions so you only get a 35% tax savings.” – Christopher Hoyt [07:53]

Notable Quotes & Memorable Moments

“January is the new December.”
– Christopher Hoyt [03:35]
(Encouraging donors who contribute less than the cap to consider deferring gifts to January to take advantage of the new deduction.)
“If your donor is over the age of 70½, you don’t have to worry about these rules... They can use their IRA to give away up to $108,000 in 2025 and exclude it from their income.”
– Christopher Hoyt [05:32]
“If you’re wealthy and you’re in the 37% income tax bracket... your charitable deductions only produce 35% tax savings.”
– Christopher Hoyt [07:53]
“Most donors over the age of 72 should make all of their charitable gifts from their IRAs. Their IRA can be their charitable foundation.”
– Christopher Hoyt [09:51]

Timestamps for Important Segments

| Timestamp | Segment Description | |------------|---------------------------------------------------------------| | 00:41 | Introduction to OB3 and overview of charitable tax changes | | 01:32 | Only 10% of taxpayers itemize; above-the-line deduction coming| | 03:25 | Planning advice: “January is the new December” | | 04:55 | Expanded SALT deduction and implications for itemization | | 05:32 | QCDs for donors over age 70½, IRA as “charitable foundation” | | 06:50 | Itemizer changes: new 0.5% AGI floor begins 2026 | | 07:53 | 37% bracket: deduction savings reduced to 35% | | 08:42 | Case study and donor advised fund planning example | | 09:51 | QCD advice: over 70½ ignore the new complexity |

Practical Takeaways

2025 is a pivotal year for charitable gift planning; act now to maximize deductions.
Non-itemizers: Watch for new above-the-line deduction in 2026 and possibly shift the timing of smaller annual gifts.
Itemizers: Consider bunching gifts or using donor advised funds before 2026’s more restrictive rules.
High-income and older donors should strongly consider IRAs as the vehicle of choice for charitable gifts.

For further detail on qualified charitable distributions for donors over age 70½, ACTEC provides an April 2025 webinar link on their site.

Transcript

A (0:05)

Your charitable income tax breaks are changing in 2025 and 2026. That's the subject of today's ACTECH Trust and Estate Talk.

B (0:16)

Welcome to ACTEC Trust and Estate Talk from the American College of Trust and Estate Council, a professional society of peer elected trust and estate lawyers in the United States and around the globe. This series offers professionals best practice advice, insights and commentary on subjects that affect our profession and clients. And now our ACTEC Fellow host with today's topic.

A (0:41)

This is Natalie Perry, ACTEC Fellow from Chicago. The One Big Beautiful Bill act was signed into law on July 4, 2025. It marked the most significant overhaul of federal tax legislation since 2017, impacting taxes, credits and deductions across the board. We recorded a series of podcasts on the bill. Charitable income tax is one of the areas where there is an urgency for professionals and taxpayers to understand the changes and their impact when filing 2025 taxes. Actec fellow Professor Christopher Hoyt at University of Missouri School School of Law in Kansas City is with us to highlight charitable deductions and what you need to know for end of year income tax planning. Welcome, Chris.

C (1:32)

Well, thank you, Natalie. We're going to go through year end tax planning because there's been a lot of changes made by the one big beautiful bill act. In Washington, D.C. they call it OB3. I kind of like that for two reasons. First of all, it has kind of a Star wars feel to it. And second, as we look at some of these changes to the charitable tax laws, they do look like they came from a galaxy far, far away. So the first thing we'll talk about is the charitable deduction is normally an itemized deduction, but only about 10% of taxpayers itemize. About 90% use the standard deduction. So beginning next year in 2026, people who take the standard deduction and do not itemize will be able to get an income tax deduction. For some of the charitable gifts, it's a maximum of $1,000 on single returns and maximum of $2,000 married filing joint returns. And the standard deductions for 2025 are $15,750 single, $31,000 married. And so with that kind of threshold, people will usually take the standard deduction. This is an above the line deduction. If you don't itemize, only cash gifts qualify. You cannot get the deduction for gifts of household items or clothing and things like that. There's a few charities that don't qualify. You can't get this deduction if you give to a donor advised fund a private grant making foundation or section 593 supporting organization, the donor will need the same kind of acknowledgment for gifts over $250 from the charity. It's called a contemporaneous written acknowledgment, and it has to say, you know, you receive no goods or services and things like that. So if this takes place in 2026, part of your year end 2025 tax planning might be to defer your usual December gifts into January, when you'll be able to deduct them. January is the new December, and that would make sense for people who donate less than $1,000 a year or $2,000 on a joint return. If, though you do donate more than $1,000 or $2,000 every year, then don't bother with deferring the gifts into next year. You'll reach the 2026 limit anyway. Another change is that more taxpayers will be able to itemize. Normally about only 10% of taxpayers itemize, but we think 14% will itemize in 2025 and 2026. And the reason is that the amount that you can deduct for your state and local taxes, which had been limited to $10,000 in 2024, is increasing to $40,000 for the years 2025 through 2029. And so higher income taxpayers are more likely to pay more state and local income tax on property tax than lower income taxpayers. And so they might be able to deduct more and might be able to itemize, though the highest income taxpayers won't benefit from this. If your income is over $500,000, we phase out that $40,000 deduction and bring it back down to $10,000. Once your income's over $600,000, you're stuck with the old $10,000 limit. So taxpayers near the $500,000 threshold might try to find ways to reduce their income below $500,000 to take advantage of the full $40,000 deduction. And this $40,000 deduction is retroactive to the beginning of the year 2025. So you might be more likely to itemize because states with high income taxes like the Northeast or California are more likely to be able to have their itemized deductions exceed the $15,000 single or $31,000 married amount. Now, before we get into these rules, I want to emphasize that your charitable tax planning strategies differ a lot depending on whether the donor is over the age of seven and a half or under age seven and a half. If the donor is over the age of seven and a half, they qualify for a special tax break that they can use their IRAs, their individual retirement Accounts, to make their charitable gifts. And the distributions that they make to the charities are excluded from from their taxable income. They're called Qualified charitable distributions, or QCDs. So if your donor is over the age of seven and a half, you don't have to worry about these rules. I'm about to tell you they can use their IRA to give away up to $108,000 in 2025 and exclude it from their income. And we did a webcast or podcast early in 2025, and we'll have links to that in this page. So for donors over the age of seven and a half, don't worry about what I'm going to talk about. But for donors under the age of seven and a half, they generally don't want to use their IRA for charitable giving. They especially want to avoid using their IRA for charitable giving if they're under the age of 59 and a half, because in that case, not only do they have taxable income, but there's a 10% penalty for distributions. So they might want to itemize. And normally the best asset to use for charitable giving under the age of seven and a half is appreciated stock. So if you do itemize your deductions, there are two changes that affect taxpayers in the year 2025 and 2026, and that is, beginning in the year 2026, individuals can only deduct charitable gifts that exceed one half of 1% of their adjusted gross income. So we're going to look at a married couple that has $200,000 of income. They might give $4,000 to charity in the year 2025. They can deduct all $4,000 in the year 2026. The first, $1,000 will not produce a tax benefit, and they can only deduct $3,000. The second tax change for people who itemize their deductions is if you're wealthy and you're in the 37% income tax bracket, which for individuals kicks in at about single people, $615,000, married, about $730,000. If you have income over that amount, you are in the highest income tax bracket of 37%. And the new law provides that you have to reduce your itemized deductions so you only get a 35% tax savings. Example, someone who's got $900,000 of income gets an extra interest check of $100. They give that to charity. Their income goes up by $100, hit with a 37% tax rate. But their $100 gift to charity only produces a 35% tax savings. So let's look at what you can do for the year 2025, and I'm going to use a married couple that every year pay $35,000 in state and local taxes. Every year they donate $10,000 to charity, and their adjusted gross income is $200,000. Last year 2024, the state and local tax limit that they could deduct was $10000. They can all deduct $10,000 of the $35,000 of taxes. So their itemized deductions were only $20,000. $10,000 for state and local tax, $10,000 charitable gifts, they took the standard deduction, but the year 2025, they can deduct up to $40,000 and they paid $35,000. So now in 2025, they can itemize. They have $45,000 of itemized deductions, and that exceeds the standard deduction. So they can deduct all 10, $10,000 of charitable gifts. But next year, in 2026, they do the same thing. They give $10,000 to charity. They can only deduct $9,000 because in 2026, they have to reduce their charitable deductions by one half of 1% of their $200,000 of AGI. So as they give $10,000 to charity, the first thousand produces no tax benefit. So year end tax planning for 2025 is to make more gifts. You might put $40,000 into a donor advised fund. You'll deduct all of it in 2025. And then next year, the donor advised fund might distribute the $10,000 to charity when you would have only gotten a $9,000 income tax savings. So the last thing, of course, is what I talked about. If you're in the 37% tax bracket, your charitable deductions only produce 35% tax savings. And some commentators believe this also applies to trusts and estates. And a trust or an estate is in a 37% tax bracket with just $16,000 of income. And will their charitable gifts only produce 35% tax savings? So the bottom line, though, is for your donors who are over the age of seven and a half, they can avoid all this complexity by giving from their retirement accounts. Most donors over the age of 72 should make all of their charitable gifts from their IRAs. Their IRA can be their charitable foundation. And then in that case, they're not hit with a 1/2 or 1% limit for itemized deductions. And if they're in the 37% tax bracket, the gift from their IRA, which is excluded from income, saves them the full 37%. And in that case, I refer you to the ACC webinar that we did in April 2025 on qualified charitable distributions.