Planned Giving Banner

New Tax Proposals

A tax proposal by the new Administration may limit your ability to fully utilize your charitable deductions.

The new Administration has proposed a limitation on the charitable deduction for those making over $250,000 per-year. Under the proposal, those to whom it applies would be limited to deducting their charitable deductions at the 28% bracket, rather than at the higher bracket that may apply to them.

What does this mean? Currently, a $100,000 gift from a taxpayer in the highest 35% bracket will generate $35,000 in tax savings – with the proposed change, the 28% bracket would be employed instead for purposes of calculating the tax savings so those would be limited to $28,000, thereby increasing the after-tax cost of the gift to you by $7,000.

If you are subject to the alternative minimum tax and its maximum 28% rate, you would see no change from your current situation with respect to utilizing your charitable deduction.

Some argue that this proposal is counter to the original congressional intent when the first charitable deduction became law in 1917. At that time, Congress concluded that it would not be fair to tax donors for gifts made to charity because the donors were giving up any economic benefit from their donations. (Sharpe Group as cited on-line at the Planned Giving Design Center). The $7,000 differential in the example above is effectively a tax.

There is significant opposition to the proposed deduction limitation in Congress, particularly with regard to public charities such as educational institutions. Several bills have already been introduced to remove this provision.

Last modified: February 21, 2014

© 2014 The President and Fellows of Harvard College. All rights reserved.