The Tax Cuts and Jobs Act will shrink the number of households claiming an itemized deduction for their gifts to non-profits from about 37 million to about 16 million in 2018, according to new Tax Policy Center estimates. At the same time, the new law will reduce the federal income tax subsidy for charitable giving by one-third, from about $63 billion to roughly $42 billion.
Overall, the TCJA will reduce the marginal tax benefit of giving to charity by more than one-quarter in 2018, raising the after-tax cost of donating by about 7 percent.
The TCJA makes four big changes that are likely to discourage charitable giving. It lowers individual income tax rates, thus reducing the value of all tax deductions; and it caps the state and local tax deduction at $10,000 and increases the standard deduction to $12,000 for singles and $24,000 for couples—two steps that will significantly reduce the number of itemizers.
The new law also roughly doubles the estate tax exemption to $22 million for couples, which will discourage tax-motivated bequests by some very wealthy households. However, that change is not included in TPC’s estimates.
Itemizing charitable tax deductions
Before accounting of any changes in the amount of charitable giving, the law will cut the number of those itemizing their charitable contributions by more than half, to about 16 million. The share of middle-income households claiming the charitable deduction will fall by two-thirds, from about 17 percent to just 5.5 percent.
Even among those making between $86,000 and $150,000, the percentage of taxpayers itemizing their charitable gifts will plummet from about 39 percent to 15 percent. And because many fewer relatively small givers will continue to deduct their gifts to non-profits, the average tax benefit from charitable deductions will increase from about $1,700 to $2,600.