The Charitable Deduction Quietly Changed on January 1

Three charitable provisions from the 2025 law took effect this January, and half a year in, most giving plans we inherit have not caught up to any of them.

The floor: itemizers now deduct charitable gifts only to the extent they exceed 0.5 percent of adjusted gross income. At $400,000 of AGI, the first $2,000 of giving each year simply stopped counting. Small number, permanent haircut, every single year.

The ceiling: taxpayers in the top bracket now get at most 35 cents of benefit per deductible dollar, even though their marginal rate is 37 percent. Another two points shaved off the top, also permanent.

The consolation prize: non-itemizers can now deduct up to $1,000 of cash gifts, $2,000 on a joint return, above the line. For clients taking the standard deduction, giving is no longer entirely invisible to the return, though the amounts are modest.

None of these changes is dramatic alone. Together they change the geometry of giving. A floor that resets every January 1 is an argument for concentration: three years of planned gifts pushed into one year clear the floor once instead of paying the toll three times. That is the bunching strategy, and the donor-advised fund is still the cleanest vehicle for it, capturing the deduction in the concentrated year while the actual grants go out on whatever schedule the client wants.

The 35 percent ceiling changes sequencing for high earners with flexibility on when income lands. A large gift is now worth slightly more in a year the client is out of the top bracket than in one deep inside it, which is the reverse of the old instinct to pair big gifts with big-income years. The difference is two points, not twenty, but on six-figure philanthropy two points is a real number.

And appreciated stock is doing more work than ever. The gift of a security with a built-in gain still removes the gain from the return entirely, floor or no floor, ceiling or no ceiling. In a year when portfolios have run up, funding the DAF with shares instead of cash remains the single most reliable move in the book.

What does not work anymore is autopilot. A giving plan written under the old rules leaks a little every year now, by exactly the amount nobody bothered to recalculate.

---

This briefing is for informational purposes only and does not constitute tax advice. The topics discussed depend on specific facts and current law, both of which change. A proper analysis of your situation requires professional review. Contact us to discuss whether this applies to your business.