North Texas Community Foundation (“NTCF”) works alongside generous individuals, families, and businesses to support their charitable giving and create lasting community impact. As a trusted partner in philanthropy, NTCF stays attuned to policy changes that could affect how donors give.
On July 4, the President signed into law a new budget reconciliation package known as the One, Big, Beautiful Bill (hereby referred to as H.R.1). While the bill does not include direct changes for community foundations or donor advised funds, it introduces tax provisions that may affect how organizations like NTCF support donors in reaching their philanthropic and financial goals. This article explores the most relevant provisions and what they mean for donors.
In the broadest terms with respect to the tax code, H.R.1 serves as an extension of the Tax Cuts and Jobs Act of 2017. This includes permanent extension of tax brackets and the increase in standard deduction previously in effect, indexed for inflation. From a tax planning perspective, this creates a more stable long-term landscape, with the major caveat that “permanent” from a legislative standpoint means until a subsequent bill is passed.
There are three key changes for individual taxpayers as it relates to itemized deductions. First is an increase to the scope of state and local tax deductions. Section 70120 of H.R.1 increases the deduction from $10,000 to $40,000 with a phase-down after adjusted gross income of $500,000 beginning in calendar year 2025 and running through 2029. This can be seen as a win for taxpayers with an additional avenue to reduce taxes especially given the application to the current year.
The second key change is a loss for taxpayers in the highest tax bracket (currently 37%). Section 70111 of H.R.1, or the 2/37th rule, limits the tax benefit of itemized deductions for those taxpayers by 2/37ths beginning in 2026. This ratio is taken from the difference to the next highest tax bracket (currently 35%) and applied to the lesser of the amount of itemized deductions or the taxable income in excess of the 37% bracket. Please consult your tax professional for further guidance as this is not the simplest of calculations.
The last of the three key changes for itemized deduction relates to charitable giving. Per Section 70425 of H.R.1 there is a 0.5% floor on deduction of total charitable contributions (cash and non-cash) beginning in 2026. In other words, a taxpayer may only deduct the contributions greater than 0.5% of the contribution base in the year gifted (that is, adjusted gross income without regard to net operating loss carryback or charitable contributions). Unfortunately, this reduces the tax savings of charitable contributions for taxpayers with itemized deductions. On the other hand, H.R.1 extends the contribution limit for cash donations to public charities like NTCF of 60% of adjusted gross income that was set to expire after this year. Any excess donations may be carried forward including the amount disallowed by the deduction floor for a maximum of five years. The savings that the IRS will get from disallowing the deduction on the first 0.5% of charitable giving for these taxpayers has in turn paid for a reinstated benefit given to those taking the standard deduction.
Per Section 70424 of H.R.1 and beginning in 2026, taxpayers electing the standard deduction may deduct charitable cash contributions up to $1,000 for single filers and $2,000 for joint filers. The deduction is above-the-line which reduces adjusted gross income. Note that this deduction is not allowed for contributions to a donor advised fund. In addition to this deduction, there is a separate $1,700 tax credit available per Section 70411 for qualified contributions to scholarship granting organizations that are tax exempt public charities. The scholarships must be for elementary or secondary education and the organizations must be certified by each state that chooses to participate.
From a business tax perspective, there is also a charitable giving floor for corporations, in this case 1% of taxable income based on Section 70426. The ceiling for corporate giving remains at 10%, and the disallowed portion below the floor can be included in any carryforward for a maximum of five years. This provision could incentivize corporations to pool multiple years of giving into a single year to ensure clearance of the 1% hurdle. If this pooled giving is done through a donor advised fund with NTCF, the grants to the individual nonprofits can be distributed to nonprofits over a longer period.
There are two remaining provisions with a specific impact to nonprofit organizations. First, Section 70416 expands the application of tax on excess compensation for covered persons of a tax-exempt organization. Essentially this now applies to all employees with compensation over $1,000,000, rather than only the top five earners of the organization.
The second provision impacting nonprofits is from Section 70415 which increases the excise tax on college and university endowments. This impacts any college or university with an enrollment of greater than 3,000 students, a simple majority of tuition-paying students located within the United States, and an endowment greater than $500,000. The tax rates are set at 1.4% (the historical rate) of the net investment income for endowments between $500,000 to $750,000, 4% for larger endowments up to $2,000,000, and 8% for endowments above $2,000,000. Note that there were no changes to excise taxes for private foundations or for otherwise endowed funds (such as with a community foundation) as may have been previously discussed in earlier drafts of the bill. Community foundations like NTCF remain an effective tool for endowment giving for a variety of reasons, including investment expertise and oversight, management efficiencies, and providing a vehicle to support the community now and forever.
There are several other important details in H.R.1 not discussed above that should be discussed with a tax planning professional for further detail. Please note that the above information is not intended to be legal or tax planning advice. References to bill H.R.1 were sourced from congress.gov.
North Texas Community Foundation drives meaningful change through charitable investment. The Foundation helps donors meet the needs of our community by providing tax-efficient strategies to support the causes they care about most. As the Foundation’s Advisor Relations Specialist, William Abigail, CPA, works closely with professional advisors to help donors integrate charitable giving into their financial and estate plans.
