The Great Tax Sunset: What Donors Need to Know
Greater Houston Community Foundation is Houston’s philanthropic partner and puts donors at the center of all that we do. Within the next several years, there will be important tax provisions that may influence how donors and clients navigate their philanthropic endeavors.
The Community Foundation is here to support professional advisors and their clients in navigating the complexities of these changes. Greater Houston Community Foundation can play a role in creating a strategy that creates the most meaningful impact, for both the donor and the community.
What is the Tax Cut and Jobs Act 2017 (TCJA)?
The TCJA is a landmark tax reform act that introduced several key changes impacting both individuals and corporations. Among these changes are alterations to deductions, rates, and exemptions, which may affect an individual’s financial outlook. One notable feature of the TCJA is the inclusion of “sunset” provisions, which means that some of the Act’s provisions are set to expire after a certain period.
For professional advisors and their clients, understanding these changes is crucial for informed decision-making. The sunset provision implies that certain tax benefits associated with charitable giving may be subject to change in the future. While we cannot predict with certainty the exact impact this may have, it underscores the importance of considering a proactive and strategic approach to your giving.
What does it mean when taxes sunset?
When taxes sunset, it means that specific tax provisions automatically expire on a predetermined date unless Congress acts to extend them. In the case of the TCJA, many provisions are scheduled to sunset at the end of 2025, reverting to pre-2017 tax law. Understanding what tax law sunsets in 2025 is essential for both high-income tax planning and preserving generational wealth.
The great tax sunset explained: key changes coming in 2026
What is the 2026 tax sunset?
The 2026 tax sunset really refers to the expiration of several TCJA provisions at the end of 2025. This means that starting January 1, 2026, unless Congress intervenes, tax laws will revert to their pre-TCJA structure. These changes will affect everything from charitable deduction limits to estate tax exemptions and overall 2026 tax brackets.
| Current law | Sunset provision | Implication | |
| Charitable contribution deductions | The TCJA allowed individuals who itemize deductions to take a charitable contribution deduction up to 60% of their adjusted gross income (AGI) for cash contributions to public charities. For example, if an individual has an AGI of $100,000, they can deduct up to $60,000 in cash donations in a given tax year. | The TCJA’s charitable contribution deduction provision is set to expire at the end of 2025. Unless Congress takes action to extend or modify this provision, the charitable contribution deduction limitation will revert to the previous law, which allowed for a deduction of up to 50% of AGI for cash contributions. | Donors who wish to take advantage of the higher deduction limit (10 percent more of their AGI) should consider making larger charitable contributions before the sunset provision takes effect. |
| Estate tax exemption | The estate tax exemption amounts to approximately $13.99 million for individuals, or $27.98 million for a married couple, for tax year 2025. This means that estates valued below these thresholds are not subject to federal estate tax. | In 2026, the increased exemption amounts are set to revert to lower pre-TCJA levels, presumably $6.8 million for individuals and $14 million for a married couple. | Donors with substantial estates may want to consider gifting larger amounts or engaging in estate planning strategies to take advantage of the current higher exemption levels. |
| Standard deduction | The TCJA significantly increased the standard deduction for individuals. In 2025, the standard deduction is $15,750 for single filers and $31,500 for joint filers. | Unless Congress acts to extend or modify the provisions, the standard deduction amounts will be cut roughly in half, however, personal exemptions will return. | Donors who normally do not itemize may wish to consider grouping their charitable giving in one year. |
Will the estate tax sunset in 2026?
Without congressional intervention, the increased federal estate tax exemption established by the TCJA will sunset after December 31, 2025. The exemption will be cut roughly in half, which could significantly impact estate planning strategies for high-net-worth individuals and families focused on preserving generational wealth.
Strategic giving before the 2026 tax sunset
With the great tax sunset approaching, donors should consider maximizing the tax benefits of charitable donations while current provisions remain in effect. The tax benefits of donor advised funds make them particularly attractive vehicles for strategic giving before these changes take effect, allowing you to lock in current deduction levels while maintaining flexibility in your grant recommendations over time.
Whether you’re looking to make sure you stay under the limit for charitable donations or want help meeting approaching year-end giving deadlines, the Community Foundation can help. Call us at 713-333-2210 or reach out directly to get started.
Greater Houston Community Foundation does not provide tax advice or services. Please consult your personal advisor with questions regarding your tax planning.
More Helpful Articles by Greater Houston Community Foundation:
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- How To Set Up a Donor Advised Fund
- DAFs & Private Foundation’s: Addressing Common Misconceptions
- Why Donating Appreciated Stock Makes Financial Sense
- How to Donate Shares of Privately Held Companies
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