Laura L. Brownfield
General Counsel

With the new year underway, the Community Foundation for Southeast Michigan is watching the shifting landscape in Washington, D.C., with a Republican-led Congress and President Trump’s return to the executive office.

The team at the Community Foundation is keeping a close eye on developments that could impact the strategies for charitably inclined individuals. As more than 30 provisions of the Tax Cuts and Jobs Act (TCJA) of 2017 are scheduled to expire at the end of 2025, proactive planning is crucial to optimize current tax incentives and navigate tax changes.

Impact of the TCJA expiration

The TCJA’s expiration will decrease federal and gift tax exemptions. Beginning in 2026, the current $13.99 million exemption amount will be significantly reduced to about $7 million. Other changes that will impact charitable giving include an increase in the current federal top income tax bracket from 37 percent to 39.6 percent. The sunset of the TCJA will also reduce the standard deduction, eliminate the state and local tax deduction cap, and terminate the pass-through business deduction for sole proprietorships, partnerships and S corporations.

These adjustments will occur at the end of 2025 unless Congress and the president intervene to change the rules sometime this year. While it is too soon to predict the new administration’s priorities, it is still worth engaging in discussions about the impact on charitable planning if certain events occur.

For example, if the current TJCA provisions are extended, the existing patterns of charitable giving are likely to continue, with a potentially continued reduction in overall donations due to the higher standard deduction and estate tax incentives that motivate the wealthiest individuals. Even if there is not a decrease in the TCJA exemptions, charitable planning remains beneficial as it allows individuals to transfer wealth out of their estate, provide for future generations, and define a lasting legacy.

On the other hand, if the TCJA sunsets and the tax code reverts to pre-TJCA rules, it could lead to an increase in charitable giving as more taxpayers will utilize higher exemptions before they return to itemizing deductions and higher marginal tax rates. A lower estate tax exemption also incentivizes lifetime giving and bequeathing assets on death through estate plan documents to reduce taxable estates for those individuals who have been slightly below the federal estate tax threshold and who will be exposed to a tax liability in 2026 and beyond.

Potential new tax legislation impacting charitable giving

There could be new tax legislation on the horizon that will impact charitable giving. For example, the proposed Charitable Act aims to create a universal charitable deduction, which could encourage giving across all income levels, regardless of whether you itemize or take the standard deduction.

Whatever the outcome, 2025 will be a year of change in tax policy as a result of a political realignment in our nation’s capital, with ramifications for charitable planning. We will keep you informed in the coming months and encourage you to reach out to your team at the Community Foundation to help you align your financial and estate planning goals with your charitable giving objectives amidst the changes.