The Charitable Deduction for Individuals

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Updated July 13, 2020
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 $44.4 billion in FY2020. Before changes
Type of
Rules for
Limit (% of
implemented by the 2017 tax revision (P.L. 115-97), the tax
Donation
Recipient
Property
AGI)
expenditure for charitable contributions was larger, an
Public charity; private
Basis of the
50%
estimated $57.0 billion for FY2017. This In Focus provides
operating foundation;
property

background information on the individual charitable
Cash or
federal, state, local
100% (cash
deduction.
short-term
government
2020 only)

The Deduction
gain capital
property
60% (cash)
Under current law, taxpayers who itemize their deductions
Private nonoperating
Basis of the
30%
can—subject to certain limitations —deduct charitable
foundation; other
property
donations to qualifying organizations. Qualifying
Public charity; private
Fair market
30%
organizations are generally “public charities” or “private
operating foundation;
value
foundations” with tax-exempt status under Internal Revenue
Long-term
federal, state, local
Code (IRC) Section 501(c)(3); federal, state, or local
capital gain
government
governments; and other less common types of qualifying
property
Private nonoperating
Basis of the
20%
organizations.
foundation; other
property
Source: Internal Revenue Code (IRC) Section 170.
Tax-deductible donations to qualifying organizations can be
Note: These are general rules, and there are numerous exceptions.
in the form of cash or property. Property held for more than
AGI limits for cash contributions are temporarily 100% in 2020, and
one year is often referred to as long-term capital gain
60%, through 2025. For more information, see CRS Report R45922,
property. Property held for less than a year is often referred
Tax Issues Relating to Charitable Contributions and 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 donations, there are
that can be deducted in a given year by changing the
limitations on the total dollar amount that can be deducted
income limitation. In 1952, as part P.L. 82-465, Congress
by the taxpayer in a given tax year. The limitations are
defined as a percentage of the taxpayer’s adjusted gross
raised the limitation to 20% of AGI. In 1954, Congress
increased the maximum deduction limit to 30% of AGI
income, or AGI (computed without regard to net operating
(P.L. 83-591) for donations to certain public charities. The
loss carrybacks), as noted in Table 1. If the amount
deducted exceeds the taxpayer’s AGI limitation, the excess
Tax Reform Act of 1969 (P.L. 91-172) raised the deduction
can be carried forward and deducted on future years’ tax
limit to 50% of AGI for donations to public charities and
allowed deductions for contributions to private operating
returns 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 organizations, the property is generally valued at
raised the limitation on the deduction for donations of cash
its basis (i.e., what the taxpayer originally paid for the
or short-term capital gain property to private nonoperating
property with adjustments) or its fair market value (how
foundations from 20% to 30% of AGI.
much the 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
Selected Legislative Background
gifts. The Revenue Act of 1924 (P.L. 68-176) specified that
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 claim an additional deduction for charitable
this In Focus are highlighted next.
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The Charitable Deduction for Individuals
giving. This temporary provision went into effect in 1982,
expenditures are associated with tax returns filed in income
and was allowed to expire as scheduled at the end of 1986.
classes of $100,000 or less (which account for 75% of tax
returns filed). Charitable deduction tax expenditures have
The 2017 tax revision (P.L. 115-97) temporarily increased
become even more concentrated in the highest income
the AGI limit for cash donations made to public charities to
category following the changes made in P.L. 115-97.
60%. This change went into effect in 2018, and is set to
expire December 31, 2025. The CARES Act (P.L. 116-136)
Figure 2. Distribution of Returns Filed and Charitable
temporarily eliminated the 60% AGI limitation for cash
Deduction Tax Expenditures, by Income Class, 2019
gifts to charities for tax year 2020 (effectively raising the
limitation to 100%). The law also created a temporary $300
above-the-line deduction for nonitemizers.
Cost
The charitable deduction is estimated to result in $48.0
billion in forgone revenue in FY2020, $44.4 billion from
the individual income tax and $3.6 billion from the
corporate income tax (Figure 1). During the past decade,
tax expenditures associated with the charitable deduction
have fluctuated, largely following patterns in charitable
giving. Individual charitable giving fell between 2008 and
2009, as a result of the Great Recession. The post-recession
recovery in giving has increased in recent years, and is
reflected in the tax expenditure estimates.

Source: Joint Committee on Taxation.
Tax expenditures associated with the charitable deduction
are also expected to be lower following the 2017 tax
Generally, taxpayers must itemize deductions to claim a
revision (P.L. 115-97). P.L. 115-97 approximately doubled
deduction for charitable donations (there is a temporary
the standard deduction and limited or repealed other
$300 above-the-line nonitemizer deduction in 2020). In
itemized deductions. As a result, fewer taxpayers are
2017, 32% of tax filers itemized deductions. Following P.L.
expected to claim itemized tax deductions generally,
115-97, for the 2019 tax filing year, an estimated 10% of
including the deduction for charitable contributions.
taxpayers will itemize deductions.
Further, lower marginal tax rates also reduce the tax
expenditure associated with the deduction for charitable
Policy Options and Considerations
contributions. Both of these factors mean reduced tax
There tends to be agreement that the tax code should
incentives for giving following P.L. 115-97.
support charitable giving. P.L. 115-97 retained the
charitable deduction; broadly, however, the higher standard
Figure 1. Charitable Deduction Tax Expenditures,
deduction, limits on other itemized deductions, and lower
FY2008-FY2023
marginal tax 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 above-the-line
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
Source: Joint Committee on Taxation.
equalize the value of the deduction for taxpayers in
different tax brackets is to cap (or make fixed) the rate of
Distribution of Benefits
the deduction. Other changes to the deduction might
Tax expenditures for charitable deductions largely benefit
include modified AGI limits or changes related to valuation
higher-income taxpayers. Higher-income taxpayers tend to
of noncash gifts.
(1) be more likely to itemize their deductions; (2) have a
greater ability to give; and (3) derive a larger tax benefit
Margot L. Crandall-Hollick, Acting Section Research
from each dollar given because they generally face higher
Manager
marginal tax rates. An estimated 86% of tax expenditures
Molly F. Sherlock, Specialist in Public Finance
for charitable giving in FY2019 will be claimed by
taxpayers in the $200,000-and-above income class (Figure
IF11022
2). Overall, an estimated 7% of returns fall into this class.
In contrast, an estimated 3% of the charitable deduction tax
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The Charitable Deduction for Individuals


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https://crsreports.congress.gov | IF11022 · VERSION 3 · UPDATED