Allworth Advice | Key Tax Changes for Charitable Giving

Understanding the Impact of Recent Tax Law Changes on Charitable Giving

As the end of the year approaches, many individuals begin to reflect on their financial habits and consider ways to give back. For those interested in charitable giving, recent tax law changes could significantly impact how and when donations are made. These updates offer new opportunities for both high-income households and everyday donors.

One of the most notable changes came with the passage of the "One Big Beautiful Bill Act" in July. This legislation introduced several key modifications that make charitable giving more favorable from a tax perspective. For higher-income individuals, particularly those focused on tax planning or legacy giving, the bill increased the adjusted gross income (AGI) threshold for deductible gifts and raised the overall limit on itemized charitable deductions. This means that those who have had a high-earning year or plan to donate appreciated assets such as stocks or real estate can benefit from these changes.

Tools like Donor-Advised Funds (DAFs) and Charitable Remainder Trusts (CRTs) become especially valuable under these circumstances. These mechanisms allow donors to make contributions now, claim a deduction immediately, and distribute gifts over time. For those looking to optimize their taxes or create a lasting charitable legacy, this presents an excellent opportunity.

Starting in 2026, a new above-the-line deduction will be available for non-itemizers. This allows individuals to deduct up to $1,000 in charitable gifts ($2,000 for married couples filing jointly). This change is significant because it brings back the ability to deduct donations for the majority of taxpayers, who previously couldn't do so due to the increased standard deduction since 2017. During the pandemic, a similar rule was in place, and nearly 90 million people took advantage of it.

For anyone considering charitable donations, the new law provides a great opportunity to reassess their giving strategy. However, as with any new legislation, it's essential to understand the details thoroughly. Consulting with a trusted financial advisor or tax professional is recommended to ensure that all options are explored and that decisions align with individual financial goals.

Weighing the Decision: Pay Off Mortgage or Invest?

Another common question revolves around whether to pay off a mortgage early or invest the difference. This decision often depends on personal priorities and financial circumstances.

To make an informed choice, start by comparing your mortgage rate with your expected investment returns. If your mortgage rate is below 4% and you anticipate long-term returns of 6-7% from a diversified portfolio, investing may be more financially advantageous. However, if the idea of being debt-free provides greater peace of mind, that should also be considered valid.

Taxes play a role in this decision as well. If you itemize deductions, the mortgage interest deduction might still offer some benefits. Additionally, liquidity is a factor to consider—once the mortgage is paid off, the money is tied up in the home and not easily accessible.

The Allworth Advice suggests that individuals should run the numbers and honestly assess what will provide the most comfort. A hybrid approach could be ideal: continue investing for long-term growth while making occasional lump-sum payments toward the mortgage. This strategy allows for wealth building and debt reduction without putting all resources into one area.

It’s important to remember that the information provided is for general informational purposes only. Each individual’s situation is unique, and it’s advisable to consult with a professional advisor, including a tax advisor or attorney, to determine the best course of action based on personal investment objectives, financial situation, and needs.

Retirement planning services are offered through Allworth Financial, a SEC Registered Investment Advisor. Securities are offered through AW Securities, a Registered Broker/Dealer, member FINRA/SIPC. For more information, visit allworthfinancial.com or call (513) 469-7500.