Of all the itemized deductions, the one for charitable contributions might seem to come out the best under tax reform. That’s because it’s the only deduction under both the House and the Senate versions of the bill that is largely undiminished. And yet charities complain donations will dry up under tax reform. What gives?
“Provisions in the tax bill the House and Senate are considering would make the situation worse” for charities, Ray Madoff, director of the Boston College Law School Forum on Philanthropy and the Public Good, says in a Nov. 27 New York Times opinion piece.
The problem, Madoff says, is the near doubling of the standard deduction. With all of the other itemized deductions either going away or constrained by new caps, most households will opt for the standard deduction rather than continue to itemize. That renders the tax deduction for charitable giving nearly meaningless. As Madoff puts it, “A vast majority of American taxpayers would no longer itemize and therefore would receive no benefits for their charitable giving.”
That argument might sound familiar. It’s the same one NAR is making about homeownership. Under the Senate bill, the mortgage interest deduction would be left intact, but the deduction for state and local taxes would go away. In the House, MID would be limited to mortgages of $500,000 and the deductions for property taxes would be capped at $10,000, while the deduction for state and local income and sales taxes would be entirely repealed. So, while MID is preserved, either entirely or in part, very few households that itemize today would continue to do so. As a result, MID would continue to be a benefit only for the wealthiest households.
Given the structural changes to the tax code lawmakers have before them, preserving the deduction for charitable contributions is mostly meaningless. This is exactly the same thing REALTORS® are saying about tax incentives for homeownership. They’re meaningless for most households if tax reform passes in its current form in both the House and the Senate.
More on tax reform’s impact on homeowners in The Voice for Real Estate.