Tucked within H.R. 1, the 2025 federal reconciliation bill, are several changes to charitable giving tax laws, including one notable bright spot that could strengthen giving from individual donors.
The bill creates a universal charitable deduction, also known as an above-the-line deduction for non-itemizers. Beginning in the 2026 tax year, tax-filers can deduct up to $1,000 for individuals or $2,000 for joint filers in charitable contributions. This provision is permanent, though not indexed to future inflation. Additionally, it does not apply to certain types of donations, including contributions to Donor Advised Funds (DAFs).
Previously, only taxpayers who itemized their returns could receive a tax benefit for charitable giving (apart from a temporary universal deduction implemented during COVID). Now, the roughly 90% of U.S. taxpayers who take the standard deduction can also receive a tax incentive to support their favorite nonprofits. This provision is estimated to generate $74 billion over 10 years for nonprofit organizations nationwide.
Additionally, because Montana’s tax code is closely linked to the federal tax code, Montana taxpayers will also see the impact of this deduction on their state taxes, further incentivizing them to give.
- As a whole, the new tax provisions included in H.R. 1 will reduce revenue for the State of Montana by more than $114 million annually, contributing to estimates showing our state’s expenses exceeding revenue as soon as FY27.
A win for nonprofits
The new universal deduction offers an opportunity to engage more people in your mission. Individual donors have always been central to the strength of Montana’s nonprofit sector, and this incentive provides a timely reason to engage these donors even more intentionally in 2026.
And…New Limits on Charitable Giving
H.R. 1 also creates new limits on charitable giving for 2026, which could disincentivize giving by large donors and corporations. Additional charitable giving changes include:
- Creating a 0.5% floor for the itemized charitable deduction, meaning that taxpayers who itemize their tax returns only receive a charitable deduction for giving in excess of 0.5% of their adjusted gross income. For example, a couple with an annual income of $300,000 can only deduct charitable donations in excess of $1,500.
- Capping the value of itemized deductions for high-income taxpayers at 35% of taxable income.
- Adding a 1.0% floor for charitable contributions by corporations, meaning corporate contributions are deductible only when they contribute at least 1% of the corporation’s taxable income.
Together, these provisions are estimated to reduce resources for nonprofit organizations by at least $81 billion over 10 years.
Find NCN’s full analysis of H.R. 1’s charitable giving provisions here.