Charitable Giving Under OBBBA

by Tom Yamachika, President, Tax Foundation Hawaii

We continue our coverage the Trump tax act By focusing on one provision that is very important to charities — like us.

In President Trump’s first term, the tax code was changed to give taxpayers a significant boost to the standard deduction, which is what every individual taxpayer can claim just for being alive even if he or she doesn’t keep meticulous records of deductible expenses.

Charities were up in arms about this.  They worried that it wouldn’t be economically beneficial for people to contribute to charity given the amount of deductible expenses that most normal people have (which is quite a bit less than the new standard deduction amount).  Thus, they feared that donations to charity would plunge and lots of charities would not survive.

So, the tax code was revised to allow taxpayers to deduct a small amount of charitable contributions even if they did not itemize.

The new tax code tries to please everyone by giving them both of these advantages.

First, the standard deduction will be bumped up from $15,000 single / $30,000 joint to $15,750 single / $31,500 joint. 

If the taxpayer or spouse is a senior citizen, defined as someone who reaches age 65 by the end of the taxable year, an additional $6,000 bonus standard deduction per senior is added.  The bonus standard deduction is in effect this year through 2028, the next Presidential election year.  But the bonus deduction is limited:  it starts phasing out once the taxpayer’s modified adjusted gross income hits $75,000 for single filers and $150,000 for couples.  A taxpayer passing this threshold loses $60 for every $1,000 over the threshold, so the bonus standard deduction is completely gone for senior singles making $175,000 and couples making $350,000.

And there’s more:  a taxpayer age 65 or blind gets an additional standard deduction of $1,600 ($2,000 for a single filer) under existing law, which the Trump tax bill did not change.

Now let’s get to the matter at hand:  donating to charity.

Beginning in 2026, taxpayers will be able to deduct $1,000, or $2,000 for a joint return, for donating to charity whether or not the taxpayers itemize deductions.  This deduction is available for cash gifts to charity but doesn’t include contributions to a private foundation or a donor advised fund.

But what about contributions of old clothes, cars, or computers?  Or donations to private foundations or donor advised funds?  Those donations follow the same rules as before, and the taxpayer would have to itemize deductions to take those write-offs.  Except that there is one more wrinkle that the new law added:  There is a “floor” of 0.5% of adjusted gross income.  What that means is that for a taxpayer making $100,000 in adjusted gross income and itemizing deductions, the first $500 of contributions will not be deductible.  If a taxpayer contributes more than that, then the excess over the floor amount can be written off as an itemized deduction.

If you think all of this is massively complicated, you wouldn’t be alone.  The complexity of the tax code is already bad enough so that folks can make a career out of being a tax preparer.  The new tax law doesn’t make things easier.

And, to add to the confusion, our State of Hawaii will need to decide next year whether to adopt all or some of the new federal tax changes into the State income tax law.  Any differences would make complying with both tax laws that much more difficult and confusing.

But even so, please don’t let these new rules dampen your enthusiasm for charitable giving.  Charities are still doing good in the world, and they still need your help to do it.