The Big Beautiful Bill is Now a Little Less Ugly to Nonprofits

By Nicholas Porto July 9, 2025

Note:  This article is one of many that BNN is publishing to cover the tax features of the so-called “Big Beautiful Bill.”  Each one is authored by one of BNN’s own tax professionals.  Our coverage includes a summary article that briefly describes many of the bill’s features and many more that are deeper dives into specific areas of interest to our clients.  A topical list of those in-depth articles may be found at the front of our summary article.

As we alluded to in our May 23^rd nonprofit summary of the House version of the Big Beautiful Bill (BBB), the Senate wasted no time in making significant modifications to President Trump’s proposed tax legislation. The House had the nonprofit sector squarely in its crosshairs to an almost vindictive degree. So, there was hope in the sector that the Senate would be at least a little more lenient. And while the final version of the bill last week still had some aspects to it that were a bit distasteful to nonprofits, there were some very welcome modifications before it made it to the President’s desk on the July 4^th holiday.  This article discusses the final version and compares it to the previous iteration.

Let’s start with some good news for nonprofits. First up, the parking tax. Much to the chagrin of nonprofits and their CPAs everywhere, Section 112024 of the House version of the BBB reinstated the dreaded parking tax first enacted with the Tax Cuts and Jobs Act in 2017 but later retroactively revoked.  The predominate speculation seemed to be that this time it would stick. Indeed, several of the presenters at the Not-For-Profit Industry Conference put on by the AICPA in Washington, D.C. in June were gloomily confident that we’d all be out counting parking spaces and modifying signage in parking lots again this coming winter. Mercifully, however, the Senate dropped this section from its Bill before the conference was even over.

The Senate didn’t stop there. Also cut from the final bill were Sections 112025 and 112026 in the House version. Section 112025 would have subjected royalty income from a nonprofit’s sales of its name and logo to unrelated business income tax treatment. Section 112026 would have taxed certain research revenue unless such research was made available to the public.

Private foundations were concerned about Section 112022 in the House version of the bill which would have sharply increased the excise tax on net investment income from the current 1.4% rate to a graduated rate based on the fair market value of the foundation’s assets as well as the assets of any related organization. Fortunately, we are all spared the endeavor of trying to decipher the definition of what constituted a “related organization” for the purposes of calculating the net investment income tax rate as Section 112022 did not make it into the final bill.

More good news came in the way of the above the line charitable deduction for individuals who do not itemize their deductions on their tax personal income tax return. The House bill set the cap at a paltry $150 for single filers and $300 for married couples filing a joint return. Section 70424 increases these caps to a more reasonable level of $1,000 and $2,000, respectively.

Observation: This is especially good news for nonprofits as the final bill did not significantly change the House’s proposed increase to the standard deduction. The standard deduction will keep going up as the Senate tied it to inflation. The increase in the standard deduction has led many in the charitable sector to be concerned that the general public would be less incentivized to give to charity at a time when many nonprofits are feeling a significant revenue squeeze. So, any good news in this area is very much welcomed.

Moving along down the line of favorability, Section 70415 of the BBB provides the nation’s largest colleges and universities a modicum of good news with respect to the “endowment tax.” The House bill looked to institute a progressive tax rate, expanding the excise tax on the endowments of higher education institutions and also lowering the bar on the size of institution to be subjected to the tax. The House bill had a top marginal rate of 21%, a substantial increase over the flat 1.4% rate established by the TCJA. Fortunately, the final bill caps the top rate at 8%.

From the good news, to the sort of good news, to the bad news for tax-exempt entities: The final BBB essentially keeps in place Section 112020 from the House bill (now Section 70416) to expand the Section 4960 tax to all employees of a nonprofit earning in excess of $1 million rather than just the top 5 highest paid. The same exceptions that currently exist for employees providing medical or veterinary services still remain in the current legislation. Additionally, Section 112027 of the House bill which applied new limits and rules on corporate charitable deductions remains unchanged in Section 70426 of the final bill.

The bill reduces the amount of benefit top earners could receive for every $1 of donation that they make. Previously, $0.37 for every $1 of charitable contributions were deductible by those in the highest tax bracket. However, the House bill lowered this cap to $0.35 for every $1 of charitable spend. Section 70111 of the Senate’s version of the bill keeps this reduction in place and they took it a step further by including Section 70425. This section is similar to the 1% “floor” concept created by the House for corporate donors (which survived into the final legislation).  The bill requires that individuals donate at last 0.5% of their AGI (as computed before considering charitable giving) before they can deduct any amount given to charity. Fortunately, at least, the Senate’s modifications to the bill makes permanent the 60% AGI limit for cash donations to public charities that was set to sunset from the TCJA this year.

Lastly, there were also some slight modifications to Section 110109 (now Section 70411) for charitable contributions to scholarship-granting organizations. First, Section 110109 created a credit for certain charitable donations, accompanied by very strict qualification rules.  The credit would sunset after 2029 in the House version, but the sunset provision was removed by the Senate.

Observation: A credit is far more potent than a deduction because it offsets tax dollar for dollar, as opposed to merely reducing the pool of net income subject to tax. It is unusual to see a credit offered for charitable contributions, and this clearly is a sign that Congress is trying to encourage donors’ behaviors.

Section 110115 (now Section 70204) created “Trump Accounts.” The House version of the bill set a cap of $5,000 a year for contributions to a Trump account; however, this cap was not applicable to 501(c) tax-exempt entities. The final bill narrows it even further by stipulating that only 501(c)(3)s are not subject to this cap instead of all tax-exempt entities.  

Observation: Nonprofits must be careful to avoid private inurement, but those that follow proper protocols will find themselves as the only party that can contribute far more to a child’s “Trump Account” than anyone else, including parents. For some targeted classes of recipients, this will greatly enhance their opportunities for higher education, business ownership, or housing.

Most in the nonprofit world were pleased to see that many of the most cumbersome and troubling provisions in the original version of the bill were left on the Senate and House floor. However, the changes that the charitable sector will experience from the new legislation are potentially significant. Colleges and universities will certainly be paying more in tax as a result of the changes to the endowment tax. And donors who itemize and those in the highest tax brackets may also be less incentivized to give to charity. Overall, it may be difficult to feel much optimism given that most of the “wins” for nonprofits from the BBB are from unfavorable sections of the bill being removed during the reconciliation process rather than from features being added to improve the previous legislative landscape.

For more information, please contact your BNN tax service provider at 800.244.7444.