The Charitable Deduction for Individuals

The Charitable Deduction for Individuals

link to page 1 link to page 1

Updated March 14, 2022
The Charitable Deduction for Individuals
The charitable deduction is a long-standing feature of the
Table 1. Limitations on Charitable Contributions
individual income tax. It is also one of the largest individual
income tax provisions in terms of annual forgone revenue,
Valuation
an estimated $52.4 billion in FY2020. Before changes
Type of
Rules for
Limit (% of
implemented by P.L. 115-97 (commonly referred to as the
Donation
Recipient
Property
AGI)
Tax Cuts and Jobs Act or TCJA), the tax expenditure for
Public charity; private
Basis of the
50%
charitable contributions was larger, an estimated $57.0
Cash or
operating foundation;
property
60% (cash)
billion for FY2017. This In Focus provides background
short-term
federal, state, local
100% (cash;
information on the individual charitable deduction.
gain capital
government
2020 & 2021)
The Deduction
property
Private nonoperating
Basis of the
30%
foundation; other
property
Under current law, taxpayers who itemize their deductions
Public charity; private
Fair market
30%
can—subject to certain limitations—deduct charitable
operating foundation;
value
donations to qualifying organizations. Qualifying
Long-term
organizations are generally “public charities” or “private
federal, state, local
capital gain
government
foundations” with tax-exempt status under Internal Revenue
property
Private nonoperating
Basis of the
20%
Code (IRC) Section 501(c)(3); federal, state, or local
foundation; other
property
governments; and other less common types of qualifying
organizations.
Source: Internal Revenue Code (IRC) Section 170.
Note: These are general rules, and there are numerous exceptions.
Tax-deductible donations to qualifying organizations can be
AGI limits for cash contributions are temporarily 100% in 2020 and
in the form of cash or property. Property held for more than
2021, and 60% through 2025. For more information, see CRS Report
one year is often referred to as long-term capital gain
R45922, Tax Issues Relating to Charitable Contributions and
property. Property held for less than a year is often referred
Organizations.
to as short-term capital gain property. Depending on (1) the
type of property donated and (2) the type of qualifying
Over time, Congress has modified the maximum amount
organization that receives the donation, there are limitations
that can be deducted in a given year by changing the
on the total dollar amount that can be deducted by the
income limitation. In 1952, as part of P.L. 82-465, Congress
taxpayer in a given tax year. The limitations are defined as
raised the limitation to 20% of AGI. In 1954, Congress
a percentage of the taxpayer’s adjusted gross income, or
increased the maximum deduction limit to 30% of AGI
AGI (computed without regard to net operating loss
(P.L. 83-591) for donations to certain public charities. The
carrybacks), as noted in Table 1. If the amount deducted
Tax Reform Act of 1969 (P.L. 91-172) raised the deduction
exceeds the taxpayer’s AGI limitation, the excess can be
limit to 50% of AGI for donations to public charities and
carried forward and deducted on future years’ tax returns
allowed deductions for contributions to private operating
for up to five years.
foundations. The 1969 act also imposed a 30% limit for
contributions of appreciated property and imposed other
For noncash donations, there are rules on how to value the
restrictions on contributions of long-term capital gain
property. Depending on the type of property and the
property. The Deficit Reduction Act of 1984 (P.L. 98-369)
recipient organization, the property is generally valued at its
raised the limitation on the deduction for donations of cash
basis (i.e., what the taxpayer originally paid for the property
or short-term capital gain property to private nonoperating
with adjustments) or its fair market value (how much the
foundations from 20% to 30% of AGI.
taxpayer would receive in an open market for the property
at the time it is donated), as noted in Table 1.
There were exceptions to these limits for particularly large
gifts. The Revenue Act of 1924 (P.L. 68-176) specified that
Selected Legislative Background
if a taxpayer made contributions exceeding 90% of net
The charitable deduction was first enacted to offset the
income in the tax year and each of the past 10 years, a full
potential negative effects of increased income taxes on
deduction was allowed. A phaseout of the unlimited
charitable giving as part of the War Income Tax Revenue
deduction was included in the Tax Reform Act of 1969.
Act of 1917 (P.L. 65-50). The overall amount that could be
deducted was limited to 15% of net taxable income to
In the early 1980s, temporary changes provided a charitable
prevent taxpayers from eliminating tax liability by claiming
deduction to nonitemizers. The Economic Recovery Act of
the deduction. The deduction has been changed dozens of
1981 (P.L. 97-34) allowed taxpayers who took the standard
times since enactment. Key legislative changes relevant to
deduction to also claim a deduction for charitable giving.
this In Focus are highlighted next.
This temporary provision went into effect in 1982, and was
allowed to expire as scheduled at the end of 1986.
https://crsreports.congress.gov

link to page 2 link to page 2 link to page 2

The Charitable Deduction for Individuals
The TCJA (P.L. 115-97) temporarily increased the AGI
for charitable giving in FY2022 will be claimed by
limit for cash donations made to public charities to 60%.
taxpayers in the $200,000-and-above income class (Figure
This change went into effect in 2018, and is set to expire
2). Overall, an estimated 6% of returns fall into this class.
December 31, 2025.
In contrast, an estimated 5% of the charitable deduction tax
expenditures are associated with tax returns filed in income
The CARES Act (P.L. 116-136) temporarily eliminated the
classes of $100,000 or less (which account for 81% of tax
60% AGI limitation for cash gifts to charities for tax year
returns filed). Charitable deduction tax expenditures have
2020 (effectively raising the limitation to 100%). The law
become even more concentrated in the highest income
also created a temporary $300 above-the-line deduction for
category following the changes made in TCJA.
nonitemizers. The Taxpayer Certainty and Disaster Tax
Relief Act of 2020 (Division EE of P.L. 116-260) provided
Figure 2. Distribution of Returns Filed and Itemized
a deduction of up to $300 ($600 in the case of a joint
Charitable Deduction Tax Expenditures, by Income
return) for charitable contributions made by nonitemizers in
Class, 2022
2021, and extended the suspension of the 60% AGI limit
for cash gifts.
Cost
The charitable deduction is estimated to result in $48.0
billion in forgone revenue in FY2020, $52.4 billion from
the individual income tax and $3.7 billion from the
corporate income tax (Figure 1). During the past decade,
tax expenditures associated with the charitable deduction
have fluctuated, as a result of both policy changes and
fluctuations in charitable giving.
Tax expenditures associated with the charitable deduction
were expected to be lower following the TCJA. The TCJA

approximately doubled the standard deduction and limited
Source: Joint Committee on Taxation.
or repealed other itemized deductions. As a result, fewer
Generally, taxpayers must itemize deductions to claim a
taxpayers are expected to claim itemized tax deductions
deduction for charitable donations (there was a temporary
generally, including the deduction for charitable
nonitemizer deduction in 2020 and 2021). In 2017, 32% of
contributions. Further, lower marginal tax rates also reduce
tax filers itemized deductions. An estimated 10% of
the tax expenditure associated with the deduction for
taxpayers will itemize deductions in 2022.
charitable contributions. Both of these factors mean reduced
tax incentives for giving following the TCJA. Potentially
Policy Options and Considerations
offsetting this effect is the nonitemizer deduction for 2020
There tends to be agreement that the tax code should
and 2021 and the higher AGI limits for cash gifts in those
support charitable giving. TCJA retained the charitable
same years.
deduction; broadly, however, the higher standard deduction,
Figure 1. Charitable Deduction Tax Expenditures,
limits on other itemized deductions, and lower marginal tax
FY2008-FY2024
rates reduced charitable giving incentives. Further, the
marginal incentive for charitable giving tends to be
strongest at the top of the income distribution.
There are various policy options related to charitable giving
incentives. For example, the temporary deduction for
nonitemizers could be extended and modified. This would
increase the incentive to give for many lower-and middle-
income tax filers. Alternatively, a floor could be imposed,
restricting deductions for charitable giving to giving above
some threshold. There would be no marginal incentive to
give small amounts, but there would be a tax incentive to
give larger amounts. The deduction could also be converted
to a credit, equalizing the subsidy for giving by individuals
in different tax brackets. Another way to equalize the value

of the deduction for taxpayers in different tax brackets is to
Source: Joint Committee on Taxation.
cap (or make fixed) the rate of the deduction. Other changes
Distribution of Benefits
to the deduction might include modified AGI limits or
changes related to valuation of noncash gifts.
Tax expenditures for charitable deductions largely benefit
higher-income taxpayers. Higher-income taxpayers tend to
Margot L. Crandall-Hollick, Specialist in Public Finance
(1) be more likely to itemize their deductions; (2) have a
greater ability to give; and (3) derive a larger tax benefit
Molly F. Sherlock, Specialist in Public Finance
from each dollar given because they generally face higher
IF11022
marginal tax rates. An estimated 84% of tax expenditures
https://crsreports.congress.gov

The Charitable Deduction for Individuals

Disclaimer
This document was prepared by the Congressional Research Service (CRS). CRS serves as nonpartisan shared staff to
congressional committees and Members of Congress. It operates solely at the behest of and under the direction of Congress.
Information in a CRS Report should not be relied upon for purposes other than public understanding of information that has
been provided by CRS to Members of Congress in connection with CRS’s institutional role. CRS Reports, as a work of the
United States Government, are not subject to copyright protection in the United States. Any CRS Report may be
reproduced and distributed in its entirety without permission from CRS. However, as a CRS Report may include
copyrighted images or material from a third party, you may need to obtain the permission of the copyright holder if you
wish to copy or otherwise use copyrighted material.

https://crsreports.congress.gov | IF11022 · VERSION 4 · UPDATED