The Great Tax Sunset: What Donors Need to Know
Key Insights & Important Giving Implications
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 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.
| 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 TCJA doubled the estate tax exemption to approximately $12.92 million for individuals, or $25.84 million for a married couple, for tax year 2023. 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 2023, the standard deduction is $13,850 for single filers and $27,700 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. |
Greater Houston Community Foundation does not provide tax advice or services. Please consult your personal advisor with questions regarding your tax planning.
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